Gold revives amid turbulent stock markets

Market report Michael Blumenroth – 12.10.2018

Weekly market report

After gold seemed to have entered a premature stage of hibernation for a few days since my last market commentary, the turbulences on the stock markets breathed new life into the precious metal at noon yesterday.

Previously, the gold price had been under some pressure as US government bond yields had risen to new multi-year highs. Ten-year Treasuries, for example, yielded more than at any time in seven years – and two-year US government bond yields climbed to the highest in eleven years.

Falling stock markets

This also caused the US dollar to remain very strong, particularly against emerging market currencies. For example, the rupee in India, one of the countries with the highest demand for gold, slumped to record lows almost daily.

This changed yesterday afternoon. After having already come under considerable pressure on Wednesday, US benchmark indices declined further. In fact, stock markets around the globe posted losses yesterday. And so gold once again beckoned as a safe haven, with the price of the precious metal recording its largest absolute daily gain in more than two years and rising to its highest since early August.

Gold price increases

In US-dollar terms, gold traded at 1,198 $/ounce on Thursday morning last week, before returning to its low for the week of 1,183 $/ounce on Monday afternoon – a result of the high US yields mentioned above. Until yesterday morning, gold was trading close to 1,190 $/ounce before jumping to the 1,200 $/ounce mark. Its rise didn’t stop until the most precious of all metals reached 1,226 $/ounce. After a small setback – and amid the recovery of stock markets overnight – gold is currently trading at 1,220 $/ounce. In view of the solid start for stocks this morning, also in Europe, the price of gold has remained fairly stable.

The euro appreciated slightly against the US dollar, especially yesterday afternoon. Nevertheless, the price of gold also rose in euro terms. The price of Xetra-Gold climbed from 33.50 €/gram last Thursday morning to 33.90 €/gram yesterday afternoon – after a setback to 33.10 €/gram in the middle of this week. It is currently trading somewhat lower at 33.80 €/gram.

Better support for gold? 

Now that the gold price has reached a two-month high, it may have better support than before, especially since it’s likely that not every short-selling position was covered amid the rapid rise yesterday.

Market participants will continue to focus on stock markets, bond yields and the strength or weakness of the US dollar.

I wish all readers a beautiful, golden October weekend – enjoy what may well be the last summery days this year.  

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