Gold held in check by further rising bond yields

Market report Michael Blumenroth – 07.07.2017

Weekly market report

Following a rather restrained start into the new trading week – certainly also due to the 4th of July holiday in the US – markets rose from their lethargy yesterday. The cause, once again, were rising yields, especially on the markets for ten-year European government bonds. In Germany, they (yield, in this context, is best explained with the term ‘market interest’) leapt to 0.57 per cent, their highest level since the beginning of 2016. Most European countries, among them France, Italy and Spain, saw rising yields especially in long-term bonds. Although the US did follow suit, it came nowhere near European yield increases, a fact which in turn boosted the euro against the US dollar.

For the gold price, the effect of the rising yields was greater than that of the slight weakening of the US dollar. Higher market interest, as my readers will remember, are usually an ‘enemy’ of gold.
The gold price in US dollars developed accordingly. While it stood at 1,252 US$/ounce last Wednesday, it had dropped to 1,218 US$/ounce by Wednesday afternoon and only slightly rebounded to 1,229 US$/ounce on Wednesday. It currently trades at 1,222 US$/ounce, i.e. 2.5 per cent lower than last week Thursday.

Against the euro, gold saw similar losses. The price of Xetra-Gold slumped from 35.40 €/gram last Thursday to a weekly low of 34.40 €/gram, where it currently remains.

The questions now are whether the markets for government bonds will continue to develop in the same direction and whether investors will seek safe havens and the US dollar will further weaken. All would have a positive effect on the gold price.

I wish all our readers a relaxing summer weekend.  

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