Is the gold price slowly rising?
Market report Michael Blumenroth – 05.12.2018
Weekly market report
Due to my busy schedule, this week’s market commentary comes two days early. The strong market movements across the stock and bond markets however did make for a newsworthy start of the week.
Market observers focus on US
As expected, the meeting of the presidents of the US and China, Trump and Xi, was the focus of market interest. While the optimism that the US and China could agree on some form of trade deal prevailed on Friday evening in the run-up to the meeting and on Monday immediately thereafter, it quickly dissolved on Tuesday. At the same time, economic concerns regained the upper hand, and many commentators are expressing increasing doubts about the question of whether the Fed really will continue on its course of increasing interest rates next year.
US government bond yield curve inverts
These economic concerns led to the minor collapse of the key US indices on Tuesday. In Asia and Europe, stock indices also dropped, leaving little chance for a year-end rally. Bonds, on the other hand, are on the rise, which means that yields/market interest rates are falling. The decline in ten-year US treasuries to up to 2.883 per cent on Tuesday is particularly significant, thus yielding just above the two-year government bonds. Should the situation change to the effect that two-year yields rise above ten-year yields, traders might interpret the development as a harbinger of a US recession. Hardly anyone is currently assuming as much; the past has, however, proven that it usually turns out that way.
Gold price in US dollar and euro rises
Declining yields and the temporary weakening of the US dollar drew a number of investors back to the gold market. The precious metal traded at 1,224 $/ounce in US dollars on Friday morning last week. After a reset to 1,217 $/ounce on Friday afternoon (when stock markets were still bullish), the price of gold crawled up to 1,242 $/ounce on Tuesday afternoon. With the US dollar regaining some of its strength, the gold price relinquished a small slice of its profits. The noblest of all metals currently (Wednesday morning) trades at 1,236 $/ounce.
The euro has slightly weakened against the US dollar since last week Friday. The price of Xetra-Gold rose from 34.60 €/gram last Friday morning to just under 35.10 €/gram on Tuesday afternoon and 35.05 €/gram this morning (Wednesday).
Trade conflict and Fed remain in focus
Today, US exchanges remain closed (in a national day of mourning for former President George H.W. Bush, who died on 30 November). At the top of tomorrow’s agenda is the OPEC meeting in Vienna, and Friday will see the publication of US labour market data. However, the markets will certainly be most concerned about every new development in the trade conflict between the US and China as well as statements by members of the Fed, which could give an indication of the future interest rate path.
I wish all readers a relaxing second Advent weekend.