Gold prices follow commodities’ downhill trend

Market report Michael Blumenroth – 13.07.2018

Weekly market report

A note to our readers: this report was written and published on Thursday afternoon prior to a two-week break. I look forward to welcoming you back on 3 August and wish anyone also taking time off a great vacation.   

A full 18 months after he came into office, a number of investors still have a hard time grasping the fact that Trump is in fact following through on his campaign “promises”. The current focus is of course on the trade conflict between the US and China, with Trump following up with further punitive tariffs this week. Roughly 6,000 products valued at $200 billion will be subject to the tariffs. China announced prompt countermeasures while negotiations to keep the situation at bay are currently nowhere in sight.  

Trade conflict continues to keep market observers in suspense

A further escalating trade conflict will entail negative repercussions on global trade activity. Traders expect that its decline will cause a drop in demand for commodities. The copper price has accordingly already fallen to a new annual low after just recently reaching a four-year high. Platinum even plummeted to a nine-year low. On Wednesday, oil prices retracted by 7 per cent (Brent) and 5 per cent (WTI), respectively, in spite of advantageous US stock data but also due to other reasons. With the commodities dipping into lows across the market, gold was also affected.  

Gold in US dollar drops, only slightly rebounds today

On Friday last week, gold was traded at 1,257 $/ounce and amid a temporary US dollar weakness, it reached a new annual high of 1,266 $/ounce. However, the gold price in US dollars continuously dropped until Thursday morning to 1,241.50 $/ounce, rebounding to 1,246 $/ounce in the afternoon.  

Downward trend for gold in euro

The euro-US-dollar exchange rate remains in a relatively narrow trading margin between 1.15 and 1.18. The gold price in euro is therefore painting a similar picture. Following an initial uptrend, it dropped. Last Friday morning, Xetra-Gold stood at 34.50 €/gram and had slightly risen to 34.58 €/gram in the afternoon. What followed was a downward slide to 34.20 €/gram on Wednesday afternoon. It currently trades at 34.35 €/gram.

What’s next – escalation or de-escalation? 

The next days will continue to focus on the trade conflict, and at the end of July we will most likely learn more about the looming car tariffs on European imports. If any de-escalation comes into sight, commodities are expected to benefit. If, however, escalation remains the way forward, gold demand as a safe haven might once again rise. 

I wish all our readers a relaxing summer weekend.  

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