Is the glass half full or half empty? Gold consolidates following new annual highs

This week’s market commentary is two days early – starting next week, it will be back to its usual publication day Friday.

Compared to the time of publication of last week’s report, gold trading has remained largely unchanged, which is far from unfavorable, as much has happened across markets during the past days.

To begin with, market focus was on the ECB meeting last Thursday. Mario Draghi stayed true to expectations in leaving monetary strategy unaltered, with the ECB continuing its shopping spree for government bonds. While Draghi did voice his concern about the rise of the euro against the US dollar, his statements did not prevent the European currency from soaring to a new two-and-a-half-year high against the dollar, whose weakness continued on Friday, in anticipation of a potential test missile launch by North Korea and the arrival of hurricane Irma. The US dollar rose in Irma’s aftermath, when it became clear that the damage done by Irma was, luckily, far below expectations.

At the same time, Friday saw the returns of ten-year government bonds fall to a new annual low of 2.01 per cent.  They have since rebounded to their present level of 2.18 per cent. 

This means that the development of currency and bond markets until Friday evening was to the benefit of the gold price, which gained considerable ground. From 1,336 US$/ounce last Thursday, the precious metal climbed to a new twelve-month high at 1,357.60 US$/ounce on Friday morning. Market sentiment had turned to increased risk propensity, resulting in the liquidation of positions in yen, Swiss francs, government bonds and gold, i.e. safe havens. The gold price dropped to 1,323 US$/ounce and then slightly rebounded to its current 1,332 US$/ounce. At the same time, US stock markets are experiencing new record highs and the US dollar has steadied considerably since Friday. I would therefore conclude that at least for gold, the glass is half full rather than half empty.

Against the euro, gold therefore also trades somewhat weaker than at the time of publication of last week’s report. The price of Xetra-Gold rose from 26.05 €/gram last Thursday to 36.15 €/gram on Friday morning. During the course of the week, it receded to just under 36€/gram and currently trades at 35.75 €/gram. 

Market observers are now in anticipation of a number of economic data to be published tomorrow, among them US consumer price development and Chinese industrial production.

I wish all of our readers a pleasant remainder of the week.