A glass half full?!

New half-year, new luck, and time to take stock. Despite all the – in some cases almost record-breaking – movements on the bond, stock and commodity markets, the gold price in US dollars at the end of the half-year traded almost exactly at or only slightly below its level at the beginning of the year. It gained around 8 per cent in euros and 18 per cent in yen. More significant price increases were prevented by the strong appreciation of the US dollar in the first half-year. The US dollar index DXY rose by almost 10 per cent since the beginning of the year to its highest level in 20 years. In addition, gold prices suffered from the significant increase in real interest rates (nominal interest rates minus inflation expectations) in the US.

Longing for safe havens

Gold, on the other hand, was supported precisely by these high inflation rates and geopolitical tensions, which made investors turn to gold as a safe haven. Since the precious metal is likely to remain in demand due to its insurance character, and the upward trend of the US dollar might reverse in the medium term because of the gloomier economic outlook, many market participants see a high potential for rising gold prices. Others, however, are more doubtful and point to the possibility of further increases in nominal and real interest rates. The jury is out – we shall see.

Central bank chiefs united in inflation fight

Inflation, central banks’ efforts to fight it and recession fears were also important issues of the week. An enormous rate hike of 1.85 percentage points in Hungary was followed by an unusually sharp rate hike of 0.5 percentage points in Sweden. In a panel discussion as part of the ECB symposium in Sintra, the central bank chiefs of the Fed, ECB and Bank of England reiterated their determination to fight inflation rigorously. This further fuelled recession concerns, which in turn caused losses on the stock markets. The US dollar was in demand as a safe haven but commodities came under pressure, although capital market interest rates fell. In this mixed situation, gold prices (in US dollars) also receded somewhat.

Weaker gold prices week on week

Gold was traded at 1,825 US$ per ounce last Friday morning. After a brief excursion above the 1,840 mark on Monday, they saw a steady decline, falling below the 1,800 mark early this morning, to 1,795. This morning at 8:30, gold in US dollars stood at 1,798 per ounce.

The Xetra-Gold price was supported by the temporarily significantly weaker euro exchange rate. From 55.70 € per gram on Friday morning and 55.20 on Monday, it rose to a weekly high of 56.40 yesterday afternoon. This morning, Xetra-Gold (as of 8:00) should be trading somewhat lower around 55.20.

Second half-year starts off with mixed signals

Recession fears seem to dominate the start of the second half of the year. To begin with, positions are usually closed in such situations; gold sales by large investors are likely. The falling capital market interest rates, however, might serve to boost gold prices in the medium term, if they remain at their now somewhat lower level. Next week starts with a US bank holiday and ends with the publication of US labour market data.

I wish all readers a pleasant summer weekend.