Central bank week slows gold

Last week, the central banks were once again in top form, with interest rate hikes in the expected range. The Fed and the ECB, as well as the Bank of England and the Swiss National Bank, raised their respective key interest rates by 50 basis points. More important, however, were the central banks’ statements and press conferences. The Fed underlined its intention of continued firm action against excessively high inflation rates, with 17 out of 19 members of the Open Market Committee stating that they expect a key interest rate of at least 5.00 per cent for the end of 2023, despite the fact that consumer price inflation data released the previous day indicated a significant month-on-month decline in inflation to 7.1 per cent in November. During his press conference, Fed Governor Jerome Powell repeatedly emphasised that the Fed still has a long way to go before inflation is considered back on track for the Fed target level of 2.0 per cent.

ECB expects inflation to continue above target level

ECB President Lagarde made similar comments in her press conference following the ECB meeting. While many market participants had expected the ECB to announce a less brash future monetary policy in view of the possible recessionary dangers for the Eurozone this winter, Lagarde put a stop to the speculation, stressing that the ECB would likely have to take additional interest rate steps in 2023 of a similar magnitude (i.e., 0.50 percentage points). She explicitly mentioned that there was still a long way to go before inflation would return to the ECB’s target level, taking several market participants by surprise. The euro initially rose significantly, but quickly slumped despite sharply rising capital market interest rates in the eurozone. The underlying rationale: Many traders and analysts are now pricing in a higher probability of recession, which – under normal circumstances – should in turn ensure higher demand for US dollars.

Although the gold price initially rose considerably, it not only gave up its gains due to the stronger US dollar, but dropped even lower before slightly stabilising at the beginning of the week.

Gold slips below the US$1,800 mark

While gold was still trading at 1,785 US$ per ounce last week Thursday, it surged rapidly by two per cent to almost 1,825 after the publication of US consumer price data. Following the central bank meetings and the announcements of further significant interest rate hikes alongside a somewhat firmer US dollar, gold dropped to 1,774 and has since recovered somewhat, trading around 1,795 US$ per ounce at 8:00 this morning (Tuesday).

The Xetra-Gold price is slightly down since Thursday one and a half weeks ago in view of a slightly firmer euro. While Xetra-Gold initially traded at 54.60 € per gram and at a high following US consumer price data at 55.10, it declined to 53.40 following the ECB meeting. This morning, Xetra-Gold was expected to start trading at around 54.45.

Positions will likely be gradually closed during the pre-Christmas week, rendering any strong market movements surprising.

I wish all readers joyous and peaceful holidays.