Gold prices temporarily surpass USD 1,800 per ounce

Market report Michael Blumenroth – 12.08.2022

Weekly Market Report

This week all eyes were focused on Wednesday, 2.30 pm, the time at which the US released its July’s consumer price data. In writing these lines, however, we need to rewind just a bit to last Friday. The US labour market report published on that day clearly exceeded expectations, as regards both the increase in the number of new employees and in wages and salaries. The markets then responded by pricing in another big rate hike of 0.75 percentage points for the forthcoming Fed meeting. Gold prices reacted by briefly plummeting by more than 20 US dollars.

Better inflation data causes strong market reactions in the short term

Speculation that US consumer prices would rise less than previously expected swelled at the beginning of the week. And, indeed, inflation declined from 9.1 per cent in the previous month to 8.5 per cent in July – analysts were expecting a median of 8.7 per cent. This was immediately followed by strong market reactions. Stock prices climbed sharply, while US capital market interest rates and bond yields fell considerably, with market players now only pricing in a 0.5 percentage-point rate increase for September. The US dollar too was down significantly. Gold prices surged well above USD 1,800 per ounce to their weekly high immediately after publication of the data. In the course of the day, however, US Federal Reserve officials again spoke out, noting that the Fed is far away from declaring “victory” on inflation. Messrs Kashkari und Evans said that there were still some key rate hikes on the agenda in the coming months. Market movements then swiftly reversed direction immediately after release of the US consumer price data. Yields rose, as did the US dollar. Gold, on the other hand, slipped back below the USD 1,800 per ounce level.

Delight in rising gold price short-lived

Gold traded at USD 1,792 per ounce last Friday morning. The price then fell to a low for the week of USD 1,765 per ounce on the back of the US labour market data. Gold has again risen moderately since the start of the week, hitting its highest price in about a month of around USD 1,808 per ounce after release of the US consumer price data. However, investors did not have much time to rejoice – yesterday saw gold drop back down to USD 1,783 per ounce. The precious metal is trading today at exactly last week’s level of circa USD 1,792 per ounce.

The Xetra-Gold price retreated moderately due to the euro to US dollar exchange rate considerably firming over the course of the week. While Xetra-Gold was trading at €56.35 per gram last Friday morning and at a weekly high of €56.50 per gram on Tuesday, it dropped back to €55.60 per gram yesterday morning due to the euro rising on the US consumer price data. At 8.00 a.m. this morning, Xetra-Gold is trading at around €55.80 per gram.

Summer slump – central banks’ monetary policy still in focus

We are basically deep in the summer slump at present, with many market participants at the beach or in the mountains. The focus is likely to remain on central banks’ monetary policy and its impact on interest and exchange rates. There is not any truly hard economic data on the agenda now for the next few days that could give us any more significant clues here, making it difficult to form an opinion.

I wish all readers a nice summer weekend before we may well see rain again next week.

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