Gold in euros at new all-time high

Market report Michael Blumenroth – 05.09.2019

Weekly market report

Please note that today’s report comes a day early; all information below was compiled on Thursday. If there’s one thing we cannot complain about looking back at the week, it is boredom. Brexit and new records in the bond markets (or new all-time lows in market interest rates/yields) have been keeping investors on their toes.

At the beginning of the week (Monday was Labor Day in the US) fears of a no-deal Brexit prevailed. In addition, new US tariffs on Chinese goods came into force on 1 September, and there was not much to suggest that there would be any positive development in the trade conflict. A solution to the conflicts in Hong Kong seemed equally far off. Demand in gold rose as it once again took on the role of safe haven.

Negative yields on government bonds continue to set the tone

The yields of many government bonds, which fell further on Tuesday, initially boosted gold prices. Ten-year Bunds, for example, yielded almost 0.75 per cent less than ever before. Yields on ten-year US Treasuries fell to their lowest level in more than three years (i.e. before the election of Donald Trump) and yields on ten-year Italian government bonds receded to a new record low of 0.8 per cent. Worldwide, bonds worth around €17 trillion are currently traded at negative yields.

Precious metals in demand among investors

So far, so normal. A positive surprise was the fact that the gold price in US dollars rose to new six-and-a-half year highs on Wednesday evening, in spite of a small rally in the equity markets yesterday and higher yields on government bonds. Gold is on its way to new cyclical highs, but so are silver, platinum and palladium. At the moment, precious metals seem to be in the focus of the investor community.

In US dollars, gold traded at 1,530 $/ounce on Friday morning last week. Until Tuesday afternoon, it remained near there, after a small reset to 1,517 $/ounce on Friday evening. With yields tumbling and the US dollar weakening during the day, gold then jumped from 1,530 $/ounce to 1,550 $/ounce on Tuesday evening and reached a new six-and-a-half year high of 1,557 $/ounce on Wednesday evening. This may have been followed by profit taking, with gold trading slightly lower at 1,546 $/ounce early Thursday morning, almost exactly one per cent above last Friday’s level.

The euro traded against the US dollar at a new two-year low of €1.0925/US$ on Tuesday, but recovered above the €1.10/US$ level after weak economic data from the US. Gold in euro reached a new all-time high of 1,413.50 €/ounce on Tuesday afternoon.

Xetra-Gold at new all-time high on Tuesday

From 44.60 €/gram on Friday morning last week, the price of Xetra-Gold climbed almost continuously upward to around 45.45 €/gram on Tuesday afternoon, a new all-time high. With the euro now standing on somewhat firmer ground, Xetra-Gold also receded slightly. This morning, Xetra-Gold should start trading at approximately 45.10 €/gram.

What has been surprising is that the gold price was able to defy the strength of the US dollar at the beginning of the week and, in the course of the week, the recovery across the stock markets. Tomorrow, on Friday, the US Labor Department will publish its report. Next week, the focus will likely be on the ECB meeting on 12 September, and the following week on the Fed meeting on 18 September. Any development in the trade conflict is of course also likely to be of interest to market participants.

I wish all our readers a happy and restful weekend.

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