A long weekend followed by central bank meetings

Uncertainty about future economic developments continued to cast its shadow over the markets this week. On the one hand, they priced in a persistently restrictive Fed monetary policy; on the other, an easing as early as the beginning of the second half of the year. The so-called “black-out period” began this week, barring Fed members from commenting publicly on monetary policy until the end of the two-day Fed meeting on 3 May and silencing any possible news from that channel.

US core inflation above expectations

The week’s economic data highlight so far was yesterday’s release of the first US GDP estimate for the opening quarter of 2023. At an annualised 1.1 per cent, it was significantly weaker than the 2.0 per cent median analysts had forecast. The development of the inflation rate of personal consumption expenditure caught more attention. At 4.9 per cent, the core rate (excluding food and energy prices) rose more strongly than expected, a fact seen by the markets as an indication that the Fed will likely again raise key interest rates by 0.25 percentage points at its meeting next week.

As a result, US government bond yields rose, and the US dollar caught a tailwind after struggling earlier in the week, which in turn slowed gold prices.

Gold price dips week on week

Gold has thus slipped somewhat from the previous week’s levels. From 1,995 US$ per ounce last Friday, it dropped to a weekly low of 1,972 on Friday afternoon following the publication of robust US economic data. The precious metal passed a rough patch of ups and downs and reached a weekly high of 2,004 on Wednesday, nearly coinciding with the 13-month high of the euro against the US dollar. As the US dollar gained confidence, gold prices lost heart – a setback to 1,975 yesterday has sent gold in US dollars to around 1,986 this morning at 8:00.

The Xetra-Gold price was similarly held back by the firmer euro-US dollar exchange rate. From 58.60 € per gram early last Friday, it dropped to 57.60 on Monday afternoon, temporarily recovering to 58.30. This morning, however, Xetra-Gold was expected to start trading lower, at around 58.00.

The week ahead  

The gold prices’ volatility is likely to remain high in the coming days with inflation data from the Eurozone set to be published on Tuesday and the ECB and Fed meetings on Thursday.

I wish all readers a relaxing long weekend and a lively start into May.