A small year-end rally for gold?

Market report Michael Blumenroth – 21.12.2018

Weekly market report

For those of us happy to see gold prices rise, the past few days have been somewhat of an early Christmas present. They were roused from the previous week’s lethargic trading, which came after the US Federal Reserve held its final meeting this year.

Fed increases key interest rate

A number of market observers seem to have expected the Fed to signal a pause or even the end of its interest rate hikes in 2019, also due to the prevailing assumption that the Fed might well include the current stock market weakness as well as the deteriorating economic expectations into its calculations. Jerome Powell, however, remained unimpressed, and the Fed raised key interest rates further on Wednesday evening while also signalling further interest rate hikes for 2019. Market participants saw this as a signal and accordingly bought US dollars and US Treasuries (which means falling yields), while selling stocks. A countermove ensued on Thursday morning after traders had done some overnight processing of the Fed announcements. 

Weaker US dollar in 2019?

The resulting market sentiment showed a fear that the Fed might raise key US interest rates too high in 2019, which in turn could stifle the US economy. In the medium term, this would also (or especially) weaken US stock markets, and cause funds there to be withdrawn and, as a result, a weaker US dollar. Since Wednesday evening, the greenback has thus depreciated quite significantly, especially against the yen, but also against the euro, which rose to just under 1.15 €/US$.

All of these developments came to the benefit of the gold price:

Gold traded at 1,243 $/ounce on Wednesday morning last week and had crept up to the 1,250 $/ounce mark in very quiet trading by Tuesday, rising to 1,258 $/ounce before the Fed meeting. Immediately afterwards, the gold price lost another US$15, but then climbed to 1,266.50 $/ounce on Thursday due to the reasons explained above, which is its highest price since the end of June. The precious metal was not quite able to retain these levels, but currently trades at a sound 1,262 $/ounce.

Xetra-Gold closes week with profit

The euro has steadily risen against the US dollar throughout the week, from 1,1270 $/ounce last Friday to 1,1470 $/ounce this morning. This, in turn, somewhat slows down the week-on-week profit of the gold price in euros. 

Xetra-Gold rose from 35.25 €/gram last Wednesday morning or a weekly low of 35.10 €/gram to 35.50 €/gram on Thursday afternoon, settling in at 35.40 €/gram this morning.

Upcoming holidays could distort price development

With the escape from its previous narrow trading range, which had lasted several months, we might now see follow-up purchases in gold – especially the lower the stock prices fall and the weaker the US dollar is traded. Over the holidays, this could lead to somewhat distorting movements due to a lack of liquidity.

I wish all our readers happy, calm, peaceful and relaxing holidays. 

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