Gold price benefits somewhat from search for safe havens and falling yields

Market report Michael Blumenroth – 12.12.2018

Weekly market report

Due to my busy schedule, this week’s market commentary is again published on Wednesday. Next week’ pre-Christmas edition will resume our usual schedule and appear on Friday. In recent days, the markets have remained vigilant as not to miss any developments regarding Brexit or the trade conflict between the US and China.

Markets look to US and Britain

A further escalation in the trade conflict appeared on market observers’ radars when the CFO of the Chinese company Huawei was arrested in Vancouver. On Tuesday of this week, however, the US President issued several surprisingly mild tweeds on China. There were also reports that China would meet US demands on the subject of car tariffs by reducing them from the current 40 to 15 per cent. While the markets may now consider this issue (similar to that of Italy's national debt) to be somewhat more relaxed, the long-running issue of Brexit is likely to cause increasing nervousness across the markets, as already reflected in the weakness of the pound sterling.

Gold price supported by low US market interest rates 

The supposed easing in the trade conflict may cause the decline in yields/market interest rates on US government bonds to hit the pause button, at least for the time being, reaching their lowest level in a number of weeks. Low market interest rates are usually positive for the gold price; it therefore comes as no coincidence that the weekly high was reached on Monday. Gold traded at 1,236 $/ounce in US dollars on Wednesday morning last week. By Monday night, it had climbed to 1,251 $/ounce, but then again receded the following day. The noblest of all metals currently (Wednesday morning) trades at 1,243 $/ounce.

Narrow trading range for gold in euro

The euro continues to trade against the US dollar within a fairly narrow trading range. The Xetra-Gold price rose from 35.05 €/gram on Wednesday morning to 35.35 €/gram on Tuesday afternoon and 35.25 €/gram this morning (Wednesday).

Market observers keep an eye on Brexit and Fed

The vote of no confidence against Theresa May was announced this morning, and the Brexit issue is now once again completely open. On the other side of the Atlantic, market participants are eagerly awaiting the Fed meeting on Wednesday, 19 December, which should have a direct impact on US market interest rates and the US dollar exchange rate, and thus also move the price of gold.

We will have a fresh look at market development on Friday next week. Until then, I wish you all a restful third Advent weekend.

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