Caught in the trading margin

Market report Michael Blumenroth – 09.12.2016

Weekly market report

During the past week, Gold was again unable to escape the previous two weeks’ trading margin, even though there were two events which heavily impacted the market: the Italian referendum on Sunday and yesterday’s ECB meeting. In the course of these events, the gold price both peaked to its weekly high and already fell to its lowest weekly price on Monday.

While the precious metal traded at 1,176 US$/ounce exactly a week ago, it rose to 1,188 US$/ounce upon publication of the Italian referendum’s results. As with the outcome of the US presidential election, a number of traders were caught off guard. More specifically those who, in a first reaction, had sold euro and stocks holdings or invested in gold. In the afternoon, the gold price plummeted to 1,157.50 US$/ounce, its lowest price since February. In the evening, it recovered to above 1,170 US$/ounce and traded between 1,165 US$/ounce and 1,180 US$/ounce, thus ignoring yesterday’s somewhat extreme volatility in the aftermath of the ECB meeting.

In a nutshell: not much has changed. Gold currently faces a stiff headwind in the shape of a very confident US dollar, record government bond and stock index returns, all of which are making safe havens seem increasingly unnecessary. In addition, the Chinese central bank chose not to increase its gold holdings in November, which is unusual. India is currently also seeing weaker demand in the wake of its cash changeover, while major US investors have been clearing out their gold holdings for weeks. Under these circumstances, the fact that gold did not depreciate even further can almost be seen as a success. It currently trades at 1,170 US$/ounce.  

Due to the fact that the price of the euro against the US dollar has remained almost unchanged week-on-week in spite of intraweek volatility, the Xetra-Gold remains steady, near the previous week’s price. From 35.45€/gram last Friday morning and its weekly high of 35.58 €/gram at the start of trading on Monday, it fell to 34.70 €/gram on Monday afternoon. It was able to recover to 35.50 €/gram yesterday and currently trades at 35.42 €/gram.

Next week, all eyes will be on the Fed meeting on Wednesday in expectation of the interest rate hike – already priced in by the markets – and the Federal Reserve Bank’s outlook for the coming years.
To all our readers, a pleasant third Advent weekend.

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