Gold prices under pressure due to strong US dollar

Market report Michael Blumenroth – 28.09.2018

Weekly market report

While the precious metal palladium became more and more expensive in the course of the week and silver, at least for a short period of time, also seemed revived, the gold price remained rather sluggish throughout the week. The highlight for the financial markets over the course of the week was certainly the meeting of the US Federal Reserve. The fact that it raised key rates by a further 25 basis points came as no surprise. During the press conference, Fed Chairman Jerome Powell may have been a little more aggressive on the issue of future interest rate hikes than what President Trump would have favoured and some market observers expected.

Italian budget deficit announcement weighs down euro

As a result, the US dollar gained quite a bit on Thursday after market participants slept through the night. The euro came under additional pressure yesterday after press reports that Italy was surprisingly breaching its 2019 deficit rules, with a target of 2.4 per cent of its GDP. After this was verified on Thursday evening, Italian government bonds are expected to yield significantly higher this morning (as a risk premium) and the Italian leading equity index just opened more than two per cent below the previous day's close. All of this is weighing quite heavily on the euro exchange rate.

Gold in US dollars plummets

In US dollar terms, gold traded at $1,209/ounce on Friday morning last week before falling below $1,200 in the afternoon. Until Wednesday, gold was traded totally uninspired, sometimes above and sometimes below this level, before taking a downward turn in yesterday afternoon and slipping to $1,181/ounce last night as a result of the strong US dollar. It currently stands at 1,182 $/ounce.

Weaker euro has only slightly cushioning effect

The euro has been quite significantly weaker against the US dollar over the course of this week, which means that the gold price in euro did not fall quite as sharply. The price of Xetra-Gold receded from 33.00 €/gram last Friday morning after some rather lethargic days to 32.55 €/gram on Thursday afternoon. With the further weakening of the euro, it has slightly recovered to € 32.70/gram.

The euro has been quite significantly weaker against the US dollar over the course of this week, which means that the gold price in euro did not fall quite as sharply. The price of Xetra-Gold receded from 33.00 €/gram last Friday morning after some rather lethargic days to 32.55 €/gram on Thursday afternoon. With the further weakening of the euro, it has slightly recovered to € 32.70/gram.

What’s in store?

Next week’s focus is hard to predict. The issue of the Italian budget will certainly be an important topic here in Europe. The US-China trade conflict has receded somewhat into the background. Today, we might see end-of-quarter dispositions across the markets. US employment data will follow at the end of next week.

I wish all our readers a relaxing autumn weekend.

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