Fed sends gold on a tailspin

Market report Michael Blumenroth – 22.09.2017

Weekly market report

This week’s most noteworthy event for the markets was Wednesday’s Fed meeting. The past weeks had brought on expectations that the Fed would not announce further interest rate hikes, and an increase in 2018 was expected only towards the end of the year.

In their statements, however, Fed representatives’ optimism regarding the US economy and other parameters far exceeded market observers’ expectations, and a number of traders were taken by surprise. Directly following the Fed meeting and during Janet Yellen’s press conference, returns/market interest rates of US government bonds rose, which also caused the US dollar to climb by .8 per cent between Wednesday night and Thursday morning. These movements in returns and the US dollar caused metal traders to sell their long positions.

Gold, accordingly, experienced losses. From 1,332 US$/ounce last Friday, the gold prices had already receded step by step, due to the decreasing demand for safe havens, as investors have been getting used to the idea of a North Korean conflict. Prior to the Fed meeting, gold traded at 1,316 US$/ounce on Wednesday. It then fell to 1,296 US$/ounce (i.e. for the first time in weeks below the 1,300 US$/ounce mark) and then dropped even further yesterday, to 1,288.50 US$/ounce. It has meanwhile rebounded somewhat, to 1,297 US$/ounce.  

In euro, gold has accordingly also dropped in value since the publication of our last report. From 35.75 €/gram last Wednesday, the price of Xetra-Gold briefly rose to 35.88 €/gram but experienced a serious setback to 34.80 €/gram and currently trades around 34.85 €/gram.
Market observers are now focusing on the further development of the US dollar as well as US returns.

Historically speaking, the Fed is in a habit of announcing a higher number of interest rate increases than it actually follows through with. As a result, the US dollar has already slightly weakened. This week’s gold prices have also felt the pressure of the significant depreciation of all base metals such as copper, zinc and aluminium. Should they, however, soon bottom out, the gold prices would be likely to stabilise and approach the recent annual highs. Let’s wait and see.

For now, I wish all of our readers a beautifully sunny autumn weekend.

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