Gold price faces slight headwind from rising market interest and stronger US dollar

Market report Michael Blumenroth – 20.04.2018

Weekly market report

The previous trading week was eventful, albeit surprising, with the pressing geopolitical questions of the week prior drifting out of focus. However, experience has taught us that political developments only have short-lived influence on the markets. At the end of the week of our previous report, the impending measures in Syria, taken by the US and its partners, as well as the possible counteractions by Russia were a central issue. The following week saw greatly reduced interest in geopolitical risks (trade conflict, Syria, Iran) across the markets. This, however, can quickly change. 

Base metal prices on the rise

While the stock markets have been focusing on quarterly results, market observers were also attentive to the strong oil prices. They had risen to their highest level since the end of 2014. Base metal prices also rose, with aluminium even reaching a six-year high and palladium rebounding from its temporary lull. This development sent a ripple through the bond markets. As a result of rising commodities prices, the returns/market interest of treasury bonds rose significantly, especially in ten-year maturities. The US dollar also regained strength due to higher returns in short-term US treasury bonds. 

Developments such as these have a dampening effect on the gold price. While the precious metal had traded at 1,351 $/ounce on the Thursday morning of our last reporting week, it fell to 1,333.50 $/ounce the day after, Friday 13 April. Following the Syria escalation, gold climbed upward at the beginning of the following week and had reached its weekly high of 1,355 /ounce by Wednesday afternoon alongside a slightly weakening US dollar. The rising returns and firmer US dollar which followed had a dampening effect on gold and it fell to 1,340 $/ounce last Friday morning.

Development of Xetra-Gold 

The gold price in euro has also weakened somewhat. From 35.15 €/gram on Thursday 12 April, Xetra-Gold dropped to 34.80 €/gram last Tuesday morning and reached its weekly high on Thursday morning at 35.17 €/gram. Following a further setback, it closed the week at approximately 25 €/gram, i.e. exactly in the middle of the week’s range. 

During the next days, the gold price will again be affected by bond market movements and US dollar fluctuations.  

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