Gold prices ease after gaining ground

Market report Michael Blumenroth – 12.02.2021

Weekly market report

Following a strong start into the week, gold saw a moderate setback yesterday. The upward momentum was largely due to US labour market data published last Friday afternoon, which remained below expectations. This caused market participants to assume the need for further monetary and fiscal policy support from the Fed and the new US administration and to expect their implementation. Over the course of the week, Fed Chairman Jerome Powell confirmed that Fed monetary policy would remain expansive for some time, seeing as it will take several years before the consequences of long-term unemployment are overcome. Market participants are taking him at his word, evident in the fact that yields on two-year US government bonds dropped to a new all-time low this week. Yields on long-term US government bonds also declined slightly.

Weekly gain of around one per cent for US dollar gold

Meanwhile, the US government continues to work on getting a fiscal package of up to US$1.9 trillion through US Congress. The expected increase in US debt put some pressure on the US dollar, causing it to weaken over the course of the week.

Lower US yields, a weaker US dollar, and rising inflation expectations, which were also due to new cyclical highs in oil and other metals such as copper and platinum, boosted gold prices.

The precious metal therefore climbed from 1,799 US$ per ounce last Friday morning to 1,855 on Wednesday afternoon, followed by a decline, especially yesterday afternoon, to 1,820 this morning. It currently trades around 1,821, a solid one per cent weekly gain.

Strong euro weighs on gold

Initially, Xetra-Gold also rose within regular trading hours, but relented under a strong euro. Trading at 48.35 € per gram last Friday morning, it saw a brief intraday drop to 48.10 by the afternoon. It then changed direction and reached 49.20 on Wednesday before easing to 48.70 at the close of trading yesterday. This morning, Xetra-Gold was expected to open slightly lower, around 48.30 € per gram.

Looking forward, Gold is likely to keep an eye on the development of the US dollar exchange rate. The Chinese New Year celebrations, which continue until next Wednesday, are currently weighing on physical demand in Asia. On Monday, the US markets will also be closed for president’s day.

I wish all readers a relaxing, sunny winter weekend.

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