Gold prices defy the rise in yields

With the developments in the Russia-Ukraine war the clear focus of media attention, we are keeping our fingers crossed for the fighting to end as soon as possible.

In other news, bond markets dominated this week’s events. After Fed Governor Jerome Powell hinted in a speech on Monday that due to the persistently high inflation rates and the extremely tight labour market in the US, the Fed’s upcoming interest rate hikes might turn out higher than a “mere” 0.25 percentage points (and possibly as imminently as at the next meeting in early May), the bond markets went wild. Yields on two-year US Treasuries jumped to 2.19 per cent, those on ten-year bonds to 2.41 per cent. European government bonds were also along by the rise in capital market interest rates. Ten-year Bunds had still yielded negative on 7 March, but reached their highest level in about four years yesterday at 0.55 per cent.

Inflation worries bolster gold price

Under regular circumstances, the recent increases in capital market interest rates would be poison for the development of gold prices. However, the continuing high inflation concerns triggered by the renewed rise in oil and natural gas prices persistently support gold, and investors are cautious in view of the current geopolitical developments.

Still – in an environment with sharply rising capital market interest rates and a therefore somewhat firmer US dollar, the fact that gold prices were able to hold their ground so strongly this week remains a surprise. The precious metal traded at 1,932 US$ per ounce last Friday morning and retreated to 1,911 on Tuesday in an immediate reaction to Powell’s speech, but quickly recovered to a one-week high at 1,966 yesterday (Thursday). This morning, gold traded at 1,957 US$ per ounce.

Xetra-Gold with weekly gain

The Xetra-Gold price has risen week on week. From 56.25 € per gram at the end of last week, it dropped to 55.70 on Tuesday. Following a sharp increase to 57.55 yesterday afternoon, Xetra-Gold was expected to start trading today at around 57.10 € per gram.

Next week, the geopolitical situation as well as price movements in energy commodities and bonds are likely to dominate the markets. In what is also the end of the quarter, US labour market data for the month of March is coming up next Friday.   

I wish all readers a relaxed and peaceful spring weekend.