Gold temporarily at a two-month high

As suspected last week, the past few days have been a “consolidation week” in preparation for the meetings of the Fed, ECB and Bank of Japan, followed by the Bank of England, all likely to spark some excitement across financial markets in the coming week.

Some of last week’s significant market changes have at least partially levelled out in the current one. Yields on US and Eurozone government bonds rose moderately following last week’s crash week, somewhat slowing the momentum of gold prices, especially on Thursday. In addition, the pressure on the US dollar eased somewhat. Having depreciated significantly last week following the publication of US inflation data, the US dollar started a slight countermovement yesterday, which hampered the positive momentum of the gold price prevalent until early yesterday.

Gold in US dollars at two-month high on Wednesday

From 1,960 US$ per ounce on last Friday morning, gold briefly dropped to a weekly low of 1,946 on Monday. It then rebounded and remained shy of the 2,000 mark at its weekly high of 1,987.50 yesterday morning, its highest price in roughly two months. What followed was a downturn due to rising yields. This morning, it will start trading at around 1,970.

The Xetra-Gold price, on the other hand, benefited somewhat yesterday from the slight depreciation of the euro against the US dollar. Last Friday morning, it traded at 56.10 € per gram and saw a brief setback on Monday to a low of 55.75, but steadily rose afterwards to 56.95 yesterday afternoon. Xetra-Gold is expected to start trading this morning at 56.85.

Which way ahead for US interest rates?

The Fed’s message after next Wednesday’s meeting will likely be decisive for the development of gold prices in the coming weeks. If the markets are left with the impression that the interest rate peak has been reached, yields and the US dollar might come under pressure, which should benefit gold. If, however, the Fed suggests at least one additional rate hike in autumn to be highly likely, gold prices will come under pressure in the short term. The Fed will probably keep the option of further rate hikes and reassess the situation in September.

I wish all readers a relaxing weekend and/or summer vacation. I will be back on 11 August with the next market commentary, and trust there will be plenty to discuss.