Gold stuck in summer slump; emerging markets currencies struggle

Market report Michael Blumenroth – 10.08.2018

Weekly market report by Michael Blumenroth

While many traders are still off on vacation, those who have returned to their desks have certainly not been bored this past week. The rapid crash of the Turkish lira alongside a number of commodities and emerging markets’ currencies has kept them on their toes. The Russian rouble as well as the Australian and New Zealand dollar fell to two-year lows against the US dollar. Gold purchases in those regions, in turn, became more expensive but also offered greater incentives to producers to sell gold. This is due to the fact that the precious metal is traded in US dollars on the world market. The weaker the home currency trades against the US dollar, the higher the producer’s profit.

Turkish lira plummets, affects gold and other currencies

However, these price developments remained modest compared to the development of the Turkish lira. Since Monday morning, it has suffered a loss of approximately 20 per cent against the US dollar and has also reached record lows against the euro. This is detrimental to the gold price for two reasons. First, Turkey is an important market in terms of gold demand, and the precious metal’s price in lira has risen by 20 per cent within the past five days. Secondly, the Turkish commodities’ weakness has started to have repercussions on other emerging markets’ currencies. Over the medium term, however, demand for gold has a good chance of increasing throughout these countries if investors decide to use the precious metal to hedge against further losses in the local currency.

Gold in US dollars sees little movement

Commodities markets remained calm throughout the week, with the exception of a minor price drop in oil on Wednesday and the fact that the strong US dollar in general is weighing down prices. Since last Friday, when it traded at 1,207 $/ounce, Gold has thus remained nearly at the same price level. It had reached a weekly high of 1,220 $/ounce after the announcement of rather unconvincing US labour market data and has since moved between 1,220 and last night’s level of 1,206 $/ounce – predominantly at around 1,212 $/ounce. It currently stands at 1,208 $/ounce.

Commodities markets remained calm throughout the week, with the exception of a minor price drop in oil on Wednesday and the fact that the strong US dollar in general is weighing down prices. Since last Friday, when it traded at 1,207 $/ounce, Gold has thus remained nearly at the same price level. It had reached a weekly high of 1,220 $/ounce after the announcement of rather unconvincing US labour market data and has since moved between 1,220 and last night’s level of 1,206 $/ounce – predominantly at around 1,212 $/ounce. It currently stands at 1,208 $/ounce.

Weak euro causes gold to remain steady

This morning, the euro reached a low of €1.1438 per $1. The gold price in euro has thus remained somewhat more stable, due to the fact that it profits from the weak euro. In euro per gram, Xetra-Gold rose from 33.50 €/gram exactly a week ago to just under 33.90 €/gram this morning and has settled just slightly below that.

All eyes remain on currencies, trade conflict

The currency markets will remain at the centre of attention throughout the next days, as well as the further developments in the trade conflict between the US and China.

I wish all our readers a relaxing and calm weekend. 

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