Gold temporarily regains US$1,800 mark

Market report Michael Blumenroth – 29.10.2021

Movement on the gold markets has been restrained compared to other markets’ at times quite significant price movements, which was especially pronounced on the bond markets. Inflation rates around the globe are high – a fact that remains surprising and is causing investors to expect much more dramatic interest rate increases than the central banks are anticipating, a prime example being Australia. While its monetary authorities are not planning the first interest rate hike before spring 2024, the markets are already pricing in three interest rate hikes of 0.25 percentage points each in the coming year. A similar pattern is evident in Canada, and even with regard to the ECB, market expectations are pointing towards an interest rate hike of 0.2 percentage points next year.

At the same time, however, yields on long-term government bonds are dropping: on the one hand, early rate hikes could mean that inflation might be pushed back quickly and thus fewer rate hikes would be needed overall in the interest rate cycle. On the other hand, the economic upswing could be slowed down, which would, in turn, also make a smaller number of interest rate hikes necessary overall.

Inflation expectations continue to rise

Looking forward, the coming weeks will keep market participants on their toes. Will those predicting faster interest rate hikes than the central banks be proved right, or will the central banks hold out for a longer period of time with what remains an expansive monetary policy?

The former could put the brakes on the gold price, the latter support it. Short-term bond markets remain in upheaval; hence, a clear “winner” as yet remains undefined. Gold, meanwhile, is benefiting slightly from the further rise in inflation expectations.

Stable gold price

Due to the unclear situation, gold prices remain at roughly the same level as a fortnight ago. They initially retreated from 1,795 US$ per ounce on Friday two weeks ago to 1,760 on the following Monday morning and reached their highest price of the past 14 days last Friday at 1,814. After that, the daily trading margins narrowed somewhat, with the precious metal remaining mostly within sight of the 1,800 mark. This morning, gold trades slightly lighter around 1,795 US$ per ounce.

Xetra-Gold traded mostly consistent with the movements of the euro/US dollar exchange rate, which were not especially pronounced. From 49.70 € per gram on Friday before last, it dropped to 48.85 the following Monday afternoon. Step by step, it rebounded to 50.15 yesterday afternoon before slacking off, also due to the somewhat firmer rate of the euro against the US dollar. This morning, it started trading around 49.50 € per gram.