Gold remains strong amid US political turbulences

Market report Michael Blumenroth – 18.08.2017

Weekly market report

During the past week, gold was able to consolidate and further increase its gains from the previous week. While on Thursday a week ago the markets were relatively calm, the verbal threats shot back and forth between the US and North Korea threatened to escalate on Friday, causing a number of stock investors to take profits.

Generally speaking, stock (indices) sales prior to a weekend are frequently reversed on Monday if the weekend remained uneventful, which was the case last weekend. The losses suffered by the global stock markets on Friday were partly compensated on Monday. The demand for safe havens seemed to weaken at the beginning of the week – it seems that there is, at least in some way, a certain “reliability” to President Trump.

Following his controversial remarks to last weekend’s events in Virginia, a number of business representatives had distanced themselves from him, forcing the President to dissolve two of his administration’s business advisory councils. On Wednesday afternoon, the market started buzzing with speculation that economic Trump advisor Gary Cohn, whom many expect to be next in line for the position of Fed chair, might resign. In that case, according to prevailing market opinion, it will become difficult for Trump to implement his planned tax policy changes. In other words: mild chaos dominated US economic policy, and a number of investors took refuge in safe havens such as the Swiss franc, yen and gold.

In US dollar, Gold traded at 1,280 US$/ounce last Wednesday. It climbed to a two-month-high of 1,292 US$/ounce last Friday and dropped to 1,268 US$/ounce on Tuesday, amidst booming stock markets and the dissolution of safe investments. Trumps speech on Tuesday however created an entirely new situation, and the Fed minutes’ publication was also helpful. A further base rate increase seems unlikely. Gold climbed back to 1,290 US$/ounce yesterday and reached 1,295 US$/ounce this morning, just now trading at 1,292 US$/ounce. In euro, gold has also steadied compared to last week. From 35.10 €/gram last Thursday, the price of Xetra-Gold rose to 35.30 €/gram at the end of last week. Due to the weaker price in US dollar and a temporarily firmer euro, Xetra-Gold fell to a weekly low of 34.75 €/gram and steadied to its current level, a weekly high of 35.35 €/gram.
During the next days, the markets will focus on the Fed symposium in Jackson Hole, where the world’s leading central bankers will gather at the end of next week, among them Janet Yellen and Mario Dranghi. Market participants are hoping for cues on the monetary policy of both the Fed and the ECB in the coming months.

I wish all our readers a relaxing and calm weekend.

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