Gold heckled by rising US dollar and government bond returns

It has been a tough week for the friends of gold: the upcoming presidency of Donald Trump and the resulting expectations and changes for market participants are the dominant topics across the markets.

Generally speaking, market participants are now expecting rising government spending in the US, as already predicted last week. Talk is of US$1 trillion within the next 10 years (that is US$1,000,000,000,000), assuming, of course, that there will be no new president in four years to take back these planned measures.

Regarding the rise of government bond returns globally and the US dollar, the markets seemed to be calming down mid-week, Janet Yellen further fueled these trends yesterday by indicating inflationary consequences and that the next interest rate hike by the Fed is imminent – more specifically, to be expected on 14 December.

This pushed both government bonds as well as the US dollar further along. Ten-year US government bonds have climbed upwards by eleven basis points since yesterday afternoon to their current 2.34 per cent. The US dollar index DXY rose to its fourteen-year high, which naturally had no positive effect on the gold price.

While gold traded at 1,260 US$/ounce last Friday morning, it fell to 1,220 US$/ounce within the same day, due to the rapid rise of bond returns and a strong US dollar. After the precious metal seemed to be consolidating from Monday to Thursday afternoon between 1,215 and 1,235 US$/ounce, it plunged southward following the appearance of Janet Yellen in front of the US congress last night. The gold price fell to 1,203 US$/ounce and currently remains weak at 1,207 US$/ounce.

Still, investors in the euro zone benefited from a weaker euro, which somewhat thwarted the price decline. Gold did, however, depreciate against the euro by more than 1.5 per cent. From 37.15€/gram a week ago, it fell to its weekly low of 36.30 €/gram. While Xetra-Gold was traded at a sound 37 €/gram yesterday evening, it fell to 36.60 €/gram during the night.

Next week, the US will have a day to reflect upon the past turbulent weeks due to Thanksgiving on Thursday. If the US dollar rally persists and US treasuries returns continue to climb, the markets could see the gold price come under further attack at around 1,200 US$/ounce. Otherwise, prices could recover in the short term or at least consolidate.

In spite of the weak price development of precious metals, I wish all readers a relaxing weekend.