Gold little changed over the week

Market report Michael Blumenroth – 14.07.2017

Weekly market report

In terms of market developments, this past week wasn’t exactly boring. First, the euro kept strengthening, reaching new highs for the year against the US dollar (1.14895 €/US$), Swiss franc, yen and pound sterling. One of the contributing factors is that more and more market observers are expecting the ECB’s unlimited supply of liquidity to dry up at some point, and that very slowly – baby step by baby step – the phase of low interest rates may draw to a close over the coming years. This has caused yields of European government bonds to increase further. The yield of the 10-year Bund, for instance, reached the highest since January 2016.

Another highlight of the week was Janet Yellen’s congressional hearing in the US on Wednesday afternoon. She expressed concern about the Fed’s ability to reach its own inflation target and said that US interest rates were now close to a “neutral” level. This was read by markets as a sign that the Fed may take a break from raising rates after the March and June hikes. As a result, US Treasury yields declined on Wednesday (with a positive effect on gold prices) before gaining again by the same margin (with a negative effect on gold prices). The euro has also lost some of its momentum since Wednesday morning, unable to take an important hurdle at 1.15 €/US$.

Last Friday morning, gold traded at 1,222 US$/ounce – before rising to 1,228 US$/ounce following the publication of US labour market data. However, it declined to its lowest in four weeks at 1,205 US$/ounce on Monday. After Yellen’s remarks on Wednesday afternoon, gold rose to 1,225 US$/ounce. As yields increased yesterday, the precious metal gave up some of its gains and is now trading at 1,218 US$/ounce.

In euro terms, gold is also slightly lower. Xetra-Gold traded at 34.40 €/gram last Friday – and rose to 34.50 €/gram after US labour market data – before reaching its low for the week at 34.00 €/gram on Monday. As the euro weakened around noon yesterday, Xetra-Gold advanced to 34.50 €/gram. It shed some of those gains overnight and is now trading at 34.35 €/gram.  

Market participants are now eagerly awaiting the release of US consumer price data this afternoon as well as the start of the quarterly reporting season for US companies. Monday night will see the publication of Chinese data – including second-quarter GDP – that will give an indication as to the country’s economic strength. Other than that, we are likely to keep guessing what the ECB and the Fed will be up to over the next couple of months.
I wish all readers a relaxing and summery weekend.

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