Gold suffers in face of yield increase and general “Trumphoria”

Market report Michael Blumenroth – 27.01.2017

Weekly market report

A week has gone by since Donald Trump ascended his seat in the oval office. Anyone who might have expected the new President to become more reserved once in office will by now be disappointed. He seems to consistently remain on the track of his agenda and bear every intention of putting his plans into practice.

For gold, the week was similar to the developments we saw right after the election. Right after the new President’s inaugural speech last Friday, the gold price rose, but soon after slumped.

Traded around 1,207 US$/ounce last Friday, it climbed to its weekly high of 1,220 US$/ounce on Monday evening. A contributing factor to this development: most certainly investors were seeking safe havens following Trump’s first speech. In addition, gold benefited from the weaker US dollar and the temporarily slowing bond yields.

Once it became clear that the US President’s agenda really would cause rising inflation (an example: the planned import taxes for goods from Mexico, which will of course have to be passed on to the end customer), government bond yields once again rose. For ten-year US government bonds, they rose to 2.55 per cent (the highest level in 2017, thus far) and for ten-year federal bonds to a twelve-month high of more than 0.49 per cent. A quick reminder: a safe interest rate is the “natural enemy” of the gold price, which slumped accordingly, this morning to its weekly low of 1,181.50 US$/ounce, currently trading only slightly recovered at 1,185 US$/ounce.

Investors in the euro zone approximately tracked this development, with a euro which has remained steady against the US dollar since last week at around 1.0680. From 36.35 €/gram a week ago, Xetra-Gold also reached its weekly high on Monday at 36.45 €/gram. From Wednesday onwards, the gold price began to ease, trading at 35.55 €/gram this morning. Xetra-Gold currently trades at 35.65 €/gram.

This afternoon, we will see the first US GDP estimates for the fourth quarter. The markets will remain more interested in seeing which of Trump’s announcements will be followed through. The gold price will most likely continue to mirror the US dollar and government bond returns in its development.

I wish all of our readers a happy, sunny weekend – enjoy the warmer weather next week.  

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