Intermittently weaker demand for safe-haven investments

Market report Michael Blumenroth – 12.05.2017

Weekly market report

Unlike the results of the Brexit vote and last year’s US election, there were no surprises in the second ballot of the French presidential election, which had been viewed as the key risk in the first half of 2017 across the markets. In its run-up, a number of major investors had sought safe investments – mainly government bonds, Swiss francs and gold – to hedge against a Le Pen win, seen as detrimental to the markets. Unsurprisingly, hedging positions in precisely these three safe havens were dissolved after Macrons overwhelming victory. Bonds, franc and gold prices slumped and the first half of the week also saw commodities come under pressure, a development caused by the oil selling wave which had kicked off at the end of last week. The general carelessness that dominated the markets also became apparent in a new 24-year low of the VIX volatility index, traded on the derivatives exchanges. In the US, the S&P 500 Index remained almost immobile and came close to setting a new record, budging less than .2 per cent on ten of eleven consecutive days.

In addition, the Fed continued its course of indicating that the next base rate increase might occur as early as in June. Last Wednesday, the expectancy was at 70 per cent, and according to Bloomberg has since risen to a whopping 100 per cent. US labour market data was also strong, boosting US government bond returns.

These conditions forced the gold price downwards, from 1,255 US$/ounce last Wednesday to 1,215 US$/ounce on Tuesday of this week, rebounding only slightly since and currently trading at 1,229 US$/ounce.

The Xetra-Gold price followed suit, from 37.00 €/gram to 35.90 €/gram on Tuesday evening and its current price of 36.40 €/gram.

Market positioning in gold is currently relatively neutral. We will see how things develop; what we know for a fact is that precious metals have hit a rough patch. But we also know that things are likely to change sooner or later.

On this note, I wish all of our readers a great weekend.

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