Gold stands up to strong US dollar while ECB sends euro into tailspin

Market report Michael Blumenroth – 15.06.2018

Weekly market report

Market participants eagerly awaited the meetings of the Fed on Wednesday evening and yesterday’s ECB meeting in Riga. Contrary to some expectations, the US central bank briskly announced two further base rate hikes for 2018 instead of just a single one. The markets, however, remained unfazed by the news. The US dollar went against textbook opinion and weakened slightly, although the Fed’s future interest rate increases might turn more aggressive.

ECB announces later-than-expected interest rate hike

Yesterday’s market reactions were an entirely different story. Although the ECB signalled an end to its QE programme in December 2018, key ECB interest rates are to remain at their present levels at least through the summer of 2019. This was contrary to market expectations, which had been set on March or June 2019. The earliest possible date is now sometime in September 2019, and only under certain conditions. It is therefore likely that not Mario Draghi (who will retire at the end of October 2019) but his successor will be the one to announce the hike.

Gold in US dollar remains firm…

The message was clear, and it sent the euro downward, causing a loss of nearly 3 cent against the US dollar from its daily high. It is currently close to its annual low. The fact that the gold prices have stood their ground may seem surprising: despite an eleven-month high of the US dollar against the G10 currencies, the precious metal trades above the $1,300/ounce mark. A week ago on Friday morning, gold stood at $1,297/ounce and remained in an extremely narrow trading margin until yesterday. Its weekly low, thus far, was reached on Wednesday at $1,292.50/ounce. It rose to its weekly high of $1,309/ounce immediately following yesterday’s ECB meeting. Despite a further rising US dollar, gold has remained, if only slightly, above the 1,300/ounce mark and currently trades at $1,301/ounce.

…as does Xetra-Gold 

Against the euro, the gold price has therefore increased considerably, due, of course, also to yesterday’s weakening of the euro. In euro per gram, this means that Xetra-Gold dropped from €35.40/gram last Friday morning with a similarly narrow trading margin to €35.40/gram on Tuesday, before taking a leap to €36.10/gram yesterday. This morning, it opened above €36.15/gram.

What’s up next?

Today’s focus is likely to remain on the reactions to the ECB meeting as well as the possible escalation of the US-China trade conflict. And – of course – the soccer world cup!

I wish all our readers a happy and sunny weekend. 

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