Another slow week for Gold, but with sunnier prospects

Market report Michael Blumenroth – 23.06.2017

Weekly market report

For all data mentioned below, please note that this commentary was composed on Thursday, 22 June – until then, gold had experienced another difficult week but was also able to rebound.

The precious metal continues to face strong headwind from the Fed, which had stated last week that it would continue to pursue its planned interest rate increases. As a result, US government bond returns as well as the US dollar slightly rose, which in turn weakened the US dollar. This development was reinforced by one of the most influential US central bankers, William Dudley, who expressed his confidence regarding the US economy and further interest rate hikes. In addition, the second round of the French elections saw an overwhelming majority for Macron and his party, prompting investors to abandon their safe haven positions.

The gold price weakened accordingly. While it had traded at 1,264 US$/ounce last Thursday it fell to 1,241 US$/ounce in the afternoon of this week’s Wednesday. Rebounding to 1,255 US$/ounce by Thursday morning, it traded firm at 1,253 US$/ounce around noon. Let us bring that into perspective: at the beginning of the year, gold traded stood at a mere 1,142 US$/ounce.

It remains unclear whether the effect of the current weakness of the oil prices (nine-month low; weak oil prices indicate weak future inflation data alongside low interest rates globally) is more likely to benefit or harm the gold price.

The weakness of the euro somewhat slowed the price decline in that currency. Xetra-Gold fell from 36.25 €/gram last week Thursday to a weekly low of 35.85 €/gram on Wednesday afternoon and rebounded somewhat to 36.10 €/gram on Thursday of this week. 

During the next days, we await the publication of sentiment indicators (buying managers’ indices) which might give us a cue for the further economic development. A number of Fed representatives are set to make public statements, among them Jerome Powell, who is a likely candidate to replace Janet Yellen as Fed Chair. And the markets might see some significant movement due to market participants’ half year-end dispositions.

We’ll see what the new week brings – until then, we hope you enjoy the first weekend of summer.

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