Gold price hits one-month high

Market report Michael Blumenroth – 05.08.2022

Weekly Market Report

After dipping below the USD 1,700 per ounce mark a fortnight ago, the price of gold has strongly recovered and is now moving back towards USD 1,800 per ounce. The US dollar’s sustained upward trend and the lower capital market interest rates both served to boost the precious metal.

Recession fears keep capital market rates in check

The considerable decline in sovereign bond yields, in particular, played out in gold’s favour. While ten-year US government bonds were still yielding almost 3.50 per cent in mid-June, this Tuesday saw a low of just 2.51 per cent. Concerns about recession are currently holding capital market interest rates in check. Many market players assume that central banks around the world will soon step on the brake when it comes to key interest rate hikes, due to softening economic data. In particular, remarks by US Federal Reserve Chair Jerome Powell following last week’s Federal Open Market Committee (FOMC) meeting were interpreted to mean that the US Fed will now significantly slow its rate hikes. Some market players even expect the Fed to make initial rate cuts as early as next year. This week, however, some Fed Committee members stressed that the Federal Reserve would continue to take decisive action against the unsustainably high rates of inflation. We will know more in September after the next FOMC meeting.

Lower US yields slowed the advance of the US dollar, which now seems to be stuck at around 1.02 against the euro, for example. Geopolitical tensions, such as China’s clear discontentment with the US and Taiwan following Nancy Pelosi’s visit to Taiwan, are also likely to have at least supported gold prices.

Fed meeting and falling yields boost gold price

Gold traded at USD 1,715 per ounce the Friday before last, and did not rise significantly in price until the FOMC meeting on Wednesday 27 July. This changed following the Committee meeting and as a result of the then sliding yields. Gold prices were climbing quite steadily until yesterday evening, hitting USD 1,795 per ounce. The precious metal is trading slightly lower this morning at around USD 1,792 per ounce.

The Xetra-Gold price recovered as well. While Xetra-Gold was still trading at EUR 54.40 per gram two Friday mornings ago, it fell to EUR 53.85 per gram at the beginning of last week. Prices for this instrument also rose quite significantly following the Fed meeting of 27 July, and by noon yesterday had reached EUR 56.50 per gram. This morning, Xetra-Gold is trading at around EUR 56.35 per gram.

Market participants eagerly await US labour market report

Market participants are eagerly awaiting today’s release of the US labour market report, from which they hope to gain further conclusions about US economic performance.

I wish all readers a pleasant summer weekend with somewhat milder temperatures than yesterday.

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