Headwind

Market report Michael Blumenroth – 02.03.2018

Weekly market report

During my one-week absence, gold was not on its best behaviour (maybe because I didn’t keep an eye on it?). Similarly, the past week has given gold investors more than one headache.

US dollar initially revives

In my opinion, the gold price is having a hard time due to the fact that the US dollar rebounded during the past ten trading days. Measured against the DXY index (which tracks the US dollar against the nine other G10 currencies) it rose by 2 per cent. Tuesday saw a further boost to the US dollar. In his first US Congress hearing as new Fed chair (the hearings are held biannually), Jerome Powell expressed his enthusiasm over what he saw as a further improvement of the macroeconomic environment since December. The market interpreted this as a possible indicator for four key interest rate increases – instead of ‘only’ three, which had been market consensus in December. The hearing, alongside exceptionally good US economic data, caused the US dollar as well as US returns to gain strength.

Announced US tariffs cause concern

Yesterday’s announcement by the US President to impose stiff steel and aluminium tariffs as early as next week significantly weakened the US dollar. Looking back, similar measures in the past have done more harm than good to the imposer. 

Xetra-Gold slightly weaker  

Two weeks ago on Friday, gold traded just under 1,360 US$/ounce. It moved downward almost continually until yesterday afternoon, when it hit 1,303 US$/ounce. Following Trump’s announcement, the US dollar depreciated and caused the gold price to rise to 1,319 US$/ounce. It currently trades at 1,318 US$/ounce. 

Against the euro, gold showed a similar development, somewhat dampened by the simultaneous drop of the euro against the US dollar. From 34.85 €/gram two weeks ago, the price of Xetra-Gold remained volatile and dropped to 34.43 €/gram before rebounding yesterday evening. It currently trades at 34.50 €/gram. 

Looking forward

In the coming days, the markets will most likely focus on the imminent trade dispute between the US and the EU, which a number of other countries will also be involved in. The ECB meeting, coming up next Thursday, as well as US labour market data will also receive attention. 

I wish all of our readers a happy, less frosty weekend. 

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