Gold struggles to gain traction

Market report Michael Blumenroth – 09.03.2018

Weekly market report

The past week has been anything but boring and it certainly didn’t lack surprising news. For Gold, however, the only news has been an absence of any fresh development. The market is currently focusing on the looming trade conflict between the US and the rest of the world – more specifically, the EU and China.

Fading safe-haven demand

Let’s recap: Last week’s announcement by the US President to impose stiff steel and aluminium tariffs shook the markets, temporarily weakened the US dollar and put the stock market under pressure. Markets, however, are usually quick to adapt. Stock markets calmed during the course of the week, with the Italian benchmark index showing a surprisingly positive development in spite of an election outcome that was everything but market-friendly. This is most likely because market participants are currently unafraid of taking risks, and safe havens are not seen as a miracle cure. As a result, the Swiss Franc and Japanese yen also depreciated. 

ECB meeting exerts downward pressure on euro, gold   

The gold price might well have also suffered headwind due to yesterday’s ECB meeting. The ECB has finally decided to end its policy of extending bond purchases, a decision overdue in light of the current economic data. In the press conference following the meeting, Mario Draghi confirmed that interest rates would remain unchanged. As a result, but also due to the firm US dollar, the euro came under pressure. 

A look back at the week’s gold price development

While gold traded at 1,318 US$/ounce exactly a week ago, it climbed upward due to the initially weaker US dollar and uncertainty following Trump’s tariff announcement. It hit 1,340.50 US$/ounce the night before Wednesday. As the dollar regained strength, the gold price slumped to its current price of 1,318.50 US$/ounce. A microscopic profit.

Against the euro, the gold price development has been similarly uneventful. It trades somewhat weaker due to the firmer euro against the US dollar. From 34.50 €/gram last Friday, the gold price rose (Italian elections, US tariff announcement) to 34.72 €/gram. It hit its weekly low yesterday at 34.27 €/gram when the euro reached its weekly high. Xetra-Gold currently trades at 34.45 €/gram.

What’s in store?

In the coming days, the markets will eagerly await any news on the impending trade conflict. This afternoon, we will see the publication of the US labour market data, with analysts paying special attention to the development of hourly wages, which might give an indication as to how quickly the US are planning on increasing interest rates.

I wish all of our readers a happy and restful spring weekend.  

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