Gold price continues to benefit from investors' increasing risk aversion

Market report Michael Blumenroth – 19.10.2018

Weekly market report

Although there was a short recovery, especially on Wednesday, the markets remain tense. This is still due to the current geopolitical tensions, of which there are plenty.

Uncertainties hit market sat beginning of reporting season

Among other things, the trade conflict between the US and China, which could lead to a cooling of the Chinese economy, was a source of concern for the markets. Sentiment has been further fuelled by the situation around the Middle East, especially Saudi Arabia and the US sanctions against Iran, which will start on 5 November. Here in Europe, the focus is currently on the budget dispute between Italy and the EU, also apparent in the fact that the spread in yields, i.e. market interest rates, between the safe haven of ten-year term German government bonds and Italian government bonds is currently at its widest since 2013. This is a sign that investors are currently cautious about investing in Italy. In addition, Brexit is moving inexorably closer, further fuelling the uncertainty hitting the markets at the current start of the reporting season. It thus comes as no surprise that a number of stock investors took profits. Yesterday, the benchmark indices especially came under pressure.

Safe havens see increased demand

One man's sorrow is another man's joy: the safe havens of US dollar, yen, franc and gold were more in demand over the course of the week. In US dollar terms, gold traded at 1,220 $/ounce on Friday morning last week and 1,215 $/ounce at the end of the week on Friday evening. After reading the weekend press, market participants probably rated the risks slightly higher on Monday. The gold price was thus able to rise to its previous weekly high of 1,233 $/ounce on Monday morning. After a renewed attempt on Tuesday to break this threshold, the precious metal fell briefly below the 1,220 $/ounce mark yesterday but rebounded amid the stock markets’ dive and rose to 1,230 $/ounce. At the start of trading this morning, however, the price was slightly down. Currently, the most precious of metals trades at 1,225 $/ounce.

Xetra-Gold gains strength

Since last week, the euro weakened against the US dollar. The gold price in euro has thus risen more clearly. Xetra-Gold moved quite continuously from 33.80 €/gram (which was also the week's low) last Friday morning to 34.45 €/gram at the start of trading this morning. In the coming days, the price development of gold could also be determined by the strength or weakness of the stock markets and the US dollar. At the moment, the safe harbour argument seems to be gaining the upper hand, at least temporarily.

I wish all our readers a relaxing weekend.

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