Gold under pressure at the end of last week but with slight rebound this morning

Market report Michael Blumenroth – 08.03.2019

Weekly market report

After gold prices failed to reach new cyclical highs last week, a number of frustrated investors apparently hit the brakes last Friday and sold their gold positions. Especially in the US, larger holdings of gold ETFs appear to have been sold.

ECB surprises with extension of low-interest period

During the course of the week, gold remained lacklustre and, like most other markets, in hopeful anticipation of yesterday's ECB meeting. Market observers were surprised by the European Central Bank’s decisions on new money injections in the form of long-term tenders to banks as well as by the announcement that interest rates would remain at the current low, at least until the beginning of 2020. Moreover, unlike its counterparts at the Federal Reserve, the ECB will take much longer to reduce its balance sheet total, i.e. the portfolio of purchased government bonds. In other words, the ECB will continue its expansionary course in terms of monetary policy. In addition, ECB President Mario Draghi painted a rather gloomy picture of the eurozone economy for 2019. 

Safe haven gold less vulnerable than government bonds, equities

After some thought, market participants reacted with shock. Both government bond yields and the euro and equity markets came under pressure. Many raw materials also lost value while gold, as a safe haven, saw a slight upward bounce this morning (as did the Japanese yen).

Gold in US dollars slightly weaker

Gold traded at 1,306 $/ounce in US dollars on Friday morning last week. It then slipped below the 1,300 $/ounce mark on Friday to 1,290 $/ounce and then dropped to a weekly low of 1,281 $/ounce prior to the ECB announcement yesterday. In a small rebound, the precious metal climbed back to 1,295 $/ounce and currently trades at 1,293 $/ounce.

Euro at a new low

In the first half of the week, the euro remained largely immobile against the US dollar and traded somewhat weaker. Yesterday after the ECB meeting, it retreated to a 22-month low of 1.1177 and has since only slightly recovered. The euro weakness overcompensated for the deterioration of the US dollar gold price.

Gold in Euro with weekly profit

The price for Xetra-Gold fell from 36.95 €/gram last Friday morning to 36.45 €/gram on Monday afternoon. After the ECB meeting and due to the weak euro, it rose to its current level of 37.10 €/gram, a slight week-on-week improvement.

Market observers keep an eye on central banks, US labour market data

Suspicions are deepening that other central banks (Australia, Canada, Sweden) might let their liquidity injections in terms of monetary policy recharge over a much longer period than what would have been expected just a few days or weeks ago. This could, in turn, support the gold price due to the persistently low interest rate environment. The markets are now waiting for the publication of US labour and wage market data.

I wish all readers happy weekend.

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