Gold holds its ground against dominant central banks

Market report Michael Blumenroth – 03.11.2023

Weekly Market Report

In addition to geopolitical developments, last week’s focus was on the various central bank meetings, and in particular that of the Fed on Wednesday evening. Leaving key interest rates unchanged, the Fed met the financial markets’ expectations. The more exciting question: what would the Fed say about future monetary policy? Governor Powell, as was to be expected, remained non-committal, but pointed out that recent weeks’ noticeable rise in bond yields should tighten financing conditions and thus dampen the economy. This, in turn, indicates that the Fed’s restrictive monetary policy is also supported by the bond markets, meaning that there is currently no need for the Fed to tighten interest rates any further.

Fed pauses on interest rate hikes

The futures markets assume the Fed cycle of interest rate hikes is likely coming to an end. Yields on long-term US government bonds came under pressure, with ten-year yields dropping by a good 0.30 percentage points within 36 hours. This development certainly contributed to supporting gold prices.

On the other hand, the markets have seen a noticeable uptick in risk aversity. For the first time since February, the leading US stock market index S&P 500 rose by more than 1 per cent over two consecutive days. Supposed safe havens such as the Swiss franc slackened accordingly during the day, especially as, in the opinion of market participants, the geopolitical situation did not deteriorate further over the course of the week. This should keep gold prices in check. Overall, the week has seen them move sideways at a high level due to conflicting influencing factors.

Gold in US dollars stable week-on-week

Early last Friday, gold traded at 1,989 US$ per ounce. As in the two weeks prior, the financial markets’ yearning for safe havens resurged on Friday afternoon in anticipation of a possible escalation of the tense situation in the Middle East over the weekend. The precious metal rose to a five-month high of around 2,009 US$ per ounce and weakened slightly at the beginning of this week. Immediately after the Fed meeting on Wednesday evening, gold hit its weekly low of 1,970 but has since recovered due to falling bond yields, to 1,990 yesterday afternoon. This morning, gold is starting the last trading day of the week at around 1,988, nearly the same level as last week.

Xetra-Gold constricted by solid euro

The Xetra-Gold price has also remained relatively stable, although the week’s somewhat stronger euro/US dollar exchange rate remains a major influence. From 60.55 € per gram last Friday, Xetra-Gold rose to a weekly high of 60.80 on Tuesday, but then slackened moderately against a strengthening euro. Hitting its weekly low at 59.80 € per gram around midday yesterday, it was expected to start trading slightly higher this morning at around 60.10.

As risk aversity has increased across the financial markets over the course of the week (see share indices), gold prices have held up well. The market could see some movement this afternoon with the publication of the October US labour market report at 13:30.  

I wish all readers a tranquil autumn weekend.


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