Gold price temporarily reaches six-year high

Market report Michael Blumenroth – 28.06.2019

Weekly market report

Just when I thought it safe to leave the office for a few days the gold price went through the ceiling. The reasons for its solid comeback were many:

 

  • The search for safe havens: Even though we saw increased optimism over the past few days for a truce in the US-Chinese trade conflict, many market observers do not (yet) share this optimism. Trump, after all, really does enjoy playing with his favourite toy – tariffs, that is. All eyes are now on the meeting of presidents Trump and Xi tomorrow morning in Osaka.
  • With last week's temporary escalation in the dispute between the US and Iran, the powder keg that is the Middle East has also come back into the focus of investors. Even if both sides are not seeking further escalation, investors are likely to play it safe.
  • The retreat into safe havens was also reflected in the rising prices of government bonds deemed safe. Yields on ten-year German government bonds fell to a record low of -.336 percent (note the minus!). Yields/market interest rates on US Treasuries also retreated to new cyclical lows.
  • Statements by ECB President Mario Draghi and Fed Chairman Jerome Powell fuelled this development when they promised further monetary easing measures. The basic rule: the lower the key interest rates or yields on government bonds, the higher the price of gold.
  • With falling yields in the US and the expectation among market participants of two to three Fed interest rate cuts this year, the US dollar also weakened, which, in turn, had a boosting effect on the gold price.
  • Over the past few years, the price of gold always bounced off the resistance zone between 1,360 and 1,380 $/ounce. By the look of things on the chart, one would expect the breakthrough of this resistance zone to trigger follow-up purchases.  

Gold price with US$100 profit in two and a half weeks

The precious metal traded at 1,355 $/ounce on Friday morning two weeks ago. The above-mentioned breakout above the resistance zone happened on Thursday, 20 June, when it climbed over 1,380 $/ounce for the first time, and what was previously a point of resistance turned into a supporting level: gold has since not traded below it. On the contrary, a new six-year high of 1,439 $/ounce was marked on Tuesday this week – a gain of $100 within two and a half weeks. In an environment of increased risk appetite (amid hopes for a truce in the trade dispute between the US and China), gold came under renewed pressure, retreating to 1,398.50 $/ounce yesterday. However, it rebounded to 1,425 $/ounce last night and stood at 1,417 $/ounce this morning.

Xetra-Gold follows example of gold in US dollars

Xetra-Gold also reached a six-year high. From 38.65 €/gram two weeks ago, it had retreated to 38.20 €/gram by the following Monday, 17 June, but has since followed the US dollar gold price and on Tuesday this week hit 40.55 €/gram – a new six-year high. It currently trades slightly lower at 40.10 €/gram.

Trade dispute continues to dominate

The markets are eagerly awaiting the outcome of tomorrow’s meeting between the presidents of the US and China at the G20 summit. If, contrary to expectations, they reach a quick agreement, the gold price might come under pressure in the short term. If, on the other hand, the conflict continues to swelter over the summer, the precious metal may continue to be in high demand as a safe haven.

I wish all readers a relaxing summer weekend. Stay cool – and for those of you off on their summer vacation, travel safely and have a wonderful time!

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