Gold prices although recovered from previous week’s lows remain undecided

It has been an astonishingly calm week for precious metals, which is somewhat surprising, as there was a lot of movement across many other markets. Two topics are currently in the spotlight. First, the trade conflicts, which the US could apparently escalate further in the run-up to the congressional elections at the beginning of November. Second, market observers’ concern about the falling prices of a number of emerging market currencies.

Trade conflict remains at the top of the agenda

In the course of the week, the US sent mixed signals. While a bilateral trade agreement was concluded with Mexico on Monday and tonight will see a further attempt to reach an agreement with Canada, the US President intensified the rhetoric yesterday evening both towards China (introduction of tariffs on other Chinese export products starting next week) and the EU (automobile tariffs). A further escalation of the trade conflict could cause an increased demand for safe havens (Swiss francs, government bonds, possibly also gold).

Emerging market currencies struggle

Yesterday’s renewed weakness of many emerging market currencies came as a shock to many investors. Not only did the Argentine peso decline dramatically (despite an interest rate hike from 45 to 60 per cent). The Indian rupee also tumbled to new record lows, the Turkish lira slowed just short of them, and the South African rupee suffered another bout of weakness. The Chinese yuan is currently the only steady emerging market currency.

Will currency weakness boost gold investments? 

The weakness across the emerging market currencies could lead investors to seek out gold, that is if people in the countries concerned have the means to invest in the precious metal and thus protect themselves from a decline in the currency (since gold has not lost value in US dollars). At the beginning of the Turkish lira crisis, however, gold sales were more likely to be made in exchange for cash. The effects can therefore at this point not be predicted.

Gold in US dollar holds above $1,200/ounce

However, the US dollar had already completed most of its weekly movement last Friday. That morning, gold stood at $1,189/ounce before rising to $1,208/ounce in the afternoon, partly due to a weaker US dollar exchange rate following Fed Chairman Jerome Powell's speech. After ending the week at $1,205/ounce, the precious metal traded between $1,214/ounce (Tuesday) and $1,197/ounce (yesterday afternoon during the currency turbulence) over the course of the week. It currently stands at $1,208/ounce.

Gold in euro also rises

In the course of the week, the euro gained against the US dollar, thereby somewhat dampening the rise in the price of gold in euros. Against the euro, however, the gold price this week also gained in value. In euros per gram, the price of Xetra-Gold rose from €33.05/gram last Friday morning to €33.40/gram on Monday noon. Afterwards, however, things slowed down somewhat, as the rise of the euro against the US dollar more than compensated for the rise in the price of gold in US dollars. The precious metal reached at a weekly low of 33.00 €/gram yesterday and currently stands at around the middle of the weekly trading range at €33.25/gram.

Trade conflict, emerging market currencies will continue to dominate

In the next few days, the trade conflict between the US and China will certainly be the focus of attention. However, the situation in the emerging market currency markets should also keep investors on their toes. Monday could be a quiet start to the week as Canada and the US celebrate Labour Day.

I wish all our readers a pleasant weekend.