Market report Michael Blumenroth – 21.03.2024

Weekly Market Report

We are nearing the end of a relatively unspectacular week, with few dramatic price changes until yesterday evening. Market players were eagerly awaiting last night’s Fed meeting and its hints toward its future monetary policy. In the run-up to the meeting, both US government bond yields and the US dollar had risen slightly, as some market players suspected the Fed might project two, rather than three, interest rate cuts in 2024 due to persistently high inflation.

US key interest rate remains high

As expected, the Fed left its key interest rate unchanged yesterday for the fifth consecutive time. The monetary authorities currently expect economic growth of 2.1 per cent for 2024, which is significantly higher than their December forecast (1.4 per cent). Growth is expected to remain robust at 2.0 per cent in 2025. The Fed is also forecasting its preferred inflation measure – the personal consumption expenditure core rate adjusted for energy and food prices (the Core PCE Price Index) – at 2.6 instead of 2.4 per cent in 2024, as well as a lower unemployment rate. All of this would point to a more cautious approach in terms of future interest rate cuts.

US benchmark stock indices hit record highs

Nevertheless, Fed members continue to expect three interest rate cuts of 0.25 percentage points each in 2024 and have not reduced this expectation to two, as some market participants had expected. Central bankers forecast key interest rates 0.25 percentage points higher over the next two years than in December. The markets showed signs of relief due to the unchanged interest rate projections for 2024. Fed Governor Jerome Powell also assured investors that the Fed would not be dissuaded from its (interest rate cut) course by the higher-than-expected inflation data for January and February. Yields on short-dated US Treasury bonds and the US dollar dropped moderately, while the leading US stock indices rose noticeably. The Dow Jones, S&P500 and Nasdaq 100 each reached new record highs.

Gold in US dollars at a new all-time high

The prospect of the expected three Fed interest rate cuts for this year boosted gold prices. Last Thursday morning, the precious metal still traded at 2,169 US$ per ounce. Until yesterday evening, it traded more or less sideways between 2,146 and 2,172, mostly around 2,157. Following the Fed meeting, it briefly jumped to 2,200 late yesterday evening after the close of trading in New York and at the opening in Asia, reaching a new all-time high. For the start of European trading this Thursday at 7:00, it stands at 2,204 US$ per ounce, almost one and a half percent higher week on week.

Xetra-Gold: following the upward trend

Xetra-Gold also traded sideways within trading hours, but with a clear upward tendency: from 63.75 € per gram last Thursday morning, it initially weakened to 63.45 at the start of the week but rose to 64.15 yesterday before settling at 63.85 at the end of trading. This morning, Xetra-Gold was expected to start the day at around 64.80, a new record high.

Several other central banks are meeting today, but unlikely to be as relevant as yesterday’s Fed meeting. Some early indicators point to economic development in the eurozone. In Holy Week, portfolio dispositions at the end of the quarter could move prices. It would not be surprising if gold prices continued along their upward trajectory.

I wish all readers a pleasant weekend despite the predicted drop in temperatures.

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