Geopolitical tensions lift gold to four-week high

This week’s report comes a day earlier for scheduling reasons.

The past days have been turbulent: last Friday, the gold price dropped due to better-than-expected US labour market data. New nonfarm jobs and wage increases, particularly interesting to the markets, where slightly above expectations, causing a stronger US dollar and higher expectations for the Fed’s interest rate hike policy.

After a calm beginning of the week, the markets were shaken from their lethargy on Tuesday evening, when the unsolved North Korea conflict made headlines. Following the US president’s speech, which included implicit threats towards North Korea, similarly menacing statements were promptly returned by Kim Jong-un. Markets reacted in taking flight from supposedly risky investments and entering safe havens, i.e. Swiss franc, yen and gold.

Last Friday gold traded at 1,269 US$/ounce and, following the publication of the US labour market data, dropped to 1,255 US$/ounce, and on Tuesday afternoon (before Trump’s speech) to its weekly low of 1,252 US$/ounce, due to the firm US dollar. However, the precious metal then experienced a complete turnaround and climbed to just below 1,280 US$/ounce.

Unlike the two weeks prior, the euro weakened against the US dollar. Xetra-Gold investors thus saw greater gains than those investing in gold in US dollar. From 34.40€/gram last Friday, Xetra-Gold initially dropped to its weekly low of 34.25 €/gram on Monday morning. Due to the weaker euro and the firmer gold price in US dollar, the Xetra-Gold price has been on the rise since Tuesday evening – to a current level of 35.10€/gram.  

Market developments heavily influenced by politics are usually short-lived, which is why we should not be surprised if turbulences caused by the North Korean conflict soon die down. The rise in gold prices would then most likely be slowed, but an overall trend is undeniable: while summer in general is usually a slow season in terms of demand, the precious metal has been holding up extremely well.

Tomorrow, we will see the publication of the US consumer price index, with market participants expecting hints on the Fed’s monetary policy. At the end of the month, the market focus will shift to the Fed symposium in Jackson Hole, which Mario Draghi as the ECB representative will also attend.

I wish all of our readers a relaxing and hopefully less rain-streaked weekend.