Gold holds its ground against strong US dollar

Market report Michael Blumenroth – 26.03.2021

Weekly Market Report

This week there was no major overarching theme to dominate the markets in one direction or another for a longer period. Many investors and traders are still keeping an eye on the development of capital market interest rates in the US, where yields on ten- and thirty-year US government bonds dropped from their cyclical highs at the end of last week. Apparently, the armada of representatives of the US Federal Reserve appearing before the microphones over the course of this week or answering questions in the US Senate, like Fed Chairman Jerome Powell, convinced investors, at least in the short term, that interest rate hikes are a long way off. At the same time, they stressed time and again that this year’s presumed inflation rate rise was merely a temporary phenomenon.

US dollar at annual high

Market observers might be sceptical, but at least for the time being, a sense of calm seems to have washed over the bond markets. The week saw the US dollar demonstrating its power, rising against the euro and the other G10 countries’ currencies to its highest level since the end of November. The development can neither be explained by rising yields nor by exceptionally good US economic data. It seems that month-end and quarter-end dispositions are currently responsible for the strong appeal of the US dollar.

Gold in US dollars and other currencies weaker

The turbulence on the Turkish markets at the beginning of the week following the dismissal of the central bank chief also resulted in price losses for other emerging market currencies – albeit to a lesser extent. In addition, new lockdowns across Europe and decreasing oil prices drove some investors to turn to the supposed safe haven US dollar. Most currencies depreciated against the US dollar, which is why the US dollar gold price also dropped somewhat over the course of the week.

The gold price initially rose from 1,744 US$ per ounce last Friday morning to 1,747 at the beginning of the week. By Wednesday, however, it had fallen back to its previous weekly low of 1,724. After an interim recovery to 1,745 yesterday around noon, the US dollar regained traction in the afternoon and thus dampened the gold price, which currently stands around 1,728 US$ per ounce.

Slight week-on-week gain for Xetra-Gold

The Xetra-Gold price rose within regular trading hours due to the strong US dollar. From 47.00 € per gram last Friday morning, it initially fell to 46.65 on Monday afternoon. From there, it advanced to its weekly high of 47.50 yesterday afternoon. At the opening of trading today, Xetra-Gold should be trading somewhat lower, at around 47.15.

The US dollar rally could continue at least until the end of the month. Month-end dispositions and new positioning at the start of the quarter on Holy Thursday could also result in stronger gold price movements.

I wish all our readers a relaxing weekend.

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