Gold and other commodities continues to feel strain of strong US dollar

Market report Michael Blumenroth – 27.04.2018

Weekly market report

The current trading week has seen some notable movement across the US Treasury bond markets alongside a strong US dollar.

The rise of returns (market interest rates) of ten-year US government bonds to 3.03 per cent received considerable attention, having risen above the 3 per cent mark for the first time since January 2014. Returns of two-year US Treasuries had risen to a ten-year high at 2.5 per cent. 

ECB meeting: no change in monetary policy

Market interest of eurozone government bonds were unable to keep up. After a sideways movement they retracted to their starting level after yesterday’s ECB meeting. This was due to the press conference following the meeting, in which ECB president Draghi stated that changes in monetary policy had not been discussed within the Governing Council of the ECB. In other words: the low/negative interest rate environment will remain in place until further notice. Returns rising in the US and remaining low within the eurozone – what follows in theory and practice is a weak euro. The European currency dropped to its lowest level since mid-January. 

Gold dips into lows as greenback gains momentum

As a number of gold producing countries’ currencies (Australia, Canada, China and Russia, amongst others) depreciated against the US dollar over the course of the week, the gold price (in euro) came under pressure. While it traded at 1,342 $/ounce last Friday, it continually lost in value, inversely correlating with the development of the rising US dollar and reaching its weekly low, thus far, at 1,315.50 $/ounce yesterday afternoon. At currently 2,317 $/ounce, it has still not recovered significantly. 

Gold price in euro slightly stronger

The gold price has been more successful holding its ground in euro. The drop of the European currency against the US dollar has been more significant than that of the gold price in US dollar. From 35.00 €/gram last Friday, the price of Xetra-Gold initially fell to 34.80 €/gram on Monday afternoon. Amid a more rapid devaluation of the euro yesterday afternoon and this morning, Xetra-Gold rose to its weekly high of approximately 35.10 €/gram and currently trades at 35.07 €/gram.

Throughout the next weeks, the gold price will remain heavily influenced by the development of US returns and the US dollar. 

I wish all of our readers a sunny weekend. Please note that next week’s report will be published a day early, on Thursday.  

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