Gold fever is running high

Market report Michael Blumenroth – 16.02.2018

Weekly market report

The past days have seen a gold rush among German Olympic athletes. Congrats to all the medal winners who gave it their best. Olympic demand for gold medals, however, had nothing to do with the past week’s rising gold price. Rather, it was due to a familiarisation effect across the markets. The rising market interest/returns in US Treasuries caused near-panic sales, especially on the stock markets. This week, they merely elicited a small frown, although US Treasury bond yields climbed to a whopping four-year high at 2.94 per cent. This was due to US consumer price data which turned out to be far above expectations, published on Wednesday. Astonishingly, this did not boost US consumer price data, probably due to the fact that investors are currently selling US Treasury bonds (as a rule, rising returns mean falling prices in the traded bonds), which is why the US dollar is feeling the pressure. Hence, the euro rose against the US dollar to a new three-year high of 1.2555 last night and remains steady slightly below that.

Gold price sees greater rise in US dollar than in euro

The gold prices are thus currently caught between rising market interest (which has a negative effect on the gold price) and a weak US dollar (positive for the gold price). Interestingly, the weak dollar seems to be the dominating factor in the current constellation. 

While gold traded at 1,315 US$/ounce exactly a week ago and even rose to 1,311.50 US$/ounce on the same day, it continued its upward climb throughout the week. Especially in the course of the surprisingly weakening US dollar following publication of US consumer price data, the gold price rose to 1,360 US$/ounce last night. It currently trades only marginally below that.

Against the Euro, the gold price also increased somewhat but faced headwind from the weak US dollar. From 34.45 €/gram last Friday, Xetra-Gold saw a brief setback to 34.32 €/gram before hitting its weekly high of 35.00 €/gram on Wednesday. Xetra-Gold currently trades at 34.85 €/gram.  

Next week is off to a calm start

The markets will certainly continue to watch the development on the interest rate markets. However, they seem to have improved their coping mechanisms; the previous year’s trends might well be resumed. Next Monday, a bank holiday in China, Canada and the US, is likely to remain calm.

Please note that the next report will be published on 2 March. I hope you’ll join us then and wish you a happy weekend.  

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