Gold slowed down by rising yields

Market report Michael Blumenroth – 13.09.2019

Weekly market report

In addition to yesterday’s ECB meeting, the highlight of the week has been the impressive rise in yields on government bonds worldwide. Ten-year US treasury bonds saw an increase for six consecutive days, by nearly 40 basis points from their cyclical low of 1.42 per cent. This was the strongest rise since November 2016, the month Trump was elected US President. In Europe, yields also saw a rise: 30-year German Bunds had positive yields for the first time in a month.

Geopolitical situation is key

The reasons for this development were the fact that the US-Chinese trade conflict has not made as many headlines as in previous weeks, as well as the fact that Italy dodged new elections and market participants currently deem a hard Brexit unlikely (a view that is prevalent but stands on unstable ground). Safe havens were thus sold, i.e. the yen, the franc, government bonds, and gold.

Yesterday, the ECB surprised the markets by announcing more monetary policy measures than expected. In particular, the renewed bond purchases had been controversial. Since the rate cut had already been priced in previously and many commentators regard this as the ECB’s final expansionary monetary policy measure and doubt its effectiveness, there were no further price gains for gold.

Weekly low on Tuesday

In the course of the week since Friday, the gold price in US dollars fell steadily and reached its low for the week on Tuesday at 1,488 US$/ounce. This was mainly due to the rising yields mentioned above. The gold price then steadily climbed upward and kicked off trading this morning well above the US$ 1,500/ounce mark.

Gold in euro performed similarly. Xetra-Gold also reached its weekly low of 43.56 €/gram on Tuesday, but then rose gradually, with yesterday’s trading day closing at 43.86 €/gram.

Next week, market participants will be focused on the Fed meeting on Wednesday evening as Trump has been demanding lower interest rates almost by the hour.

All the best to our readers and have an excellent late summer weekend.

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