Gold price on a roller-coaster ride this week

Market report Michael Blumenroth – 05.07.2019

Weekly market report

We’ve just had some very exciting days as far as the gold price was concerned.

At first things didn’t look so good for the noblest of all metals. On Saturday, US President Trump and his counterpart, Chinese President Xi Jinping, agreed on a sort of ceasefire in the trade conflict between the US and China. After the meeting, the US President was unusually conciliatory and willing to negotiate with China, which made the markets hope for progress on this issue.

As market participants felt relatively positive about this outcome of the G20 summit, safe havens such as gold, the Swiss franc and the yen were initially sold at the start of trading on Monday. However, somehow investors didn’t quite seem to trust the calm – after all, neither China nor the US had made an official announcement about what had actually been agreed at the meeting. Everything remained somewhat diffuse.

The second big topic this week was the personnel decisions made in Brussels. In particular, of course, the proposal that the current president of the IMF, Christine Lagarde, should become the new president of the ECB in November. It is true that nothing is yet known about Lagarde’s monetary policy stance. But earlier statements on her part lead market participants to believe that it does not differ too much from Mario Draghi’s. Or, in other words, that Madame Lagarde would be more likely to cut interest rates one time too many rather than too few.

This caused yields on ten-year Bunds to fall to –0.411 per cent, below the ECB’s current negative interest rate. In Italy in particular, yields on government bonds also fell rapidly. In many European countries (France, the Netherlands, Switzerland, Slovakia, Slovenia, Belgium), ten-year government bonds yielded below zero over the course of the week. Yields on ten-year US Treasuries also fell to a two-and-a-half-year low.

The low market interest rates around the globe over the course of the week then helped the gold price to recover:

In US-dollar terms, gold traded at 1,417 $/ounce on Friday morning last week. By the end of the week it was down to 1,410 $/ounce and opened about one per cent lower on Monday before trading at 1,382 $/ounce in the morning, the lowest point for the week. By noon on Tuesday the gold price was bobbing around the 1,390 $/ounce mark, before rising quickly starting on Tuesday afternoon to 1,437.50 $/ounce in the night before Wednesday. Here, some short-term investors who had sold gold short after the G20 were likely also surprised by the rally and had to step on the brakes. On a rather directionless US holiday yesterday, gold retreated to 1,410 $/ounce, gaining another one per cent last night, before once again dropping somewhat. So, there is some movement on the market right now. Gold is currently trading at 1,415 $/ounce, roughly the same level as before the G20 summit.

The Xetra gold price even surpassed its six-year high of 40.55  €/gram achieved last week. From 40.10  €/gram last Friday, it first dropped to 39.25  €/gram on the Monday after the G20 summit. Then we saw an upward trend here as well, particularly from Tuesday to Wednesday’s high of the week at 40.65  €/gram. After again retreating a bit, the price currently stands at 40.35  €/gram.

Today we’ll be waiting for the US labour market figures, which will be published at 14:30 CEST . If they are below expectations, this could increase the likelihood of a rate cut by the Federal Reserve on 31 July. And vice versa.

I wish all readers a restful, still quite summery weekend.

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