An unmemorable week for gold prices

Market report Michael Blumenroth – 19.02.2021

Weekly market report

In a déjà vu situation, gold prices were steady to slightly firmer at the beginning of the week. However, due to the US public holiday on Monday, turnover was also rather slight. Once US traders returned to their screens on Tuesday, the picture quickly changed.

The week was dominated by clearly rising inflation expectations and, as a result, rising yields on long-term government bonds. Much attention was paid to the rise in yields on ten- and thirty-year Treasuries to one-year highs of 1.33 and 2.11 per cent, respectively. And yields of long-term bonds in the eurozone as well as, for example, UK, Australia and New Zealand also seem to have caught many market participants unawares. The impact of rising yields on the currency markets remains somewhat unclear; stock markets were slightly slowed.

Across commodity markets, industrial metals saw unabated price rises, among them copper, which climbed to its highest level since 2012, and tin, which reached new multi-year highs. Oil prices rose to their highest level in a year due to the Texas blizzard. Inflation expectations are driven upward accordingly.  

Rival: government bonds

Gold prices usually benefit from rising inflation expectations. At the moment, however, they are under pressure from government bonds’ sharply rising yields, which are similar to the precious metal in the fact that they are also considered safe havens. Over the course of the week, gold in US dollars dipped beyond the low of November 2020 and has thus traded at its lowest since July.

Week-on-week gold price development in US dollars and euros

The gold price initially climbed from US$1,821 per ounce last Friday morning to 1,830 in the afternoon. On Tuesday afternoon, it stared its decline and reached 1,761 last night. Currently, the precious metal trades at a slightly recovered 1,775.

Xetra-Gold initially developed favourably within regular trading hours, but mirrored the negative development described above from Tuesday onwards. From €48.30 per gram last Friday morning and an intraday rise to 48.55 in the afternoon, it dropped below the 48.00 mark on Tuesday and reached its low for the week this morning at 47.00 with the start of trading. Xetra-Gold currently trades marginally higher at €47.05 per gram. 

Outlook: trendsetting factors

Gold prices will keep an eye on the development of yields. Should they continue to rise, there is a risk of further price losses. In the medium term, the precious metal might be supported by rising inflation expectations. 

I wish all readers a sunny early spring weekend.

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