Lying in wait

Market report Michael Blumenroth – 19.01.2018

Weekly market report

The year kicked off successfully for the most precious of metals. And this trend has, albeit somewhat more restrained, continued.

A variety of factors are currently influencing the gold price, with the ongoing decline of market interest/returns tugging it downward. Last night, returns for ten-year US treasuries climbed to their highest level since 2016 (2.63 per cent). Australia, Europe and most other American and Asian countries also experienced rising returns. The age of ultra-low interest rates is thus likely to come to an end.

On the other hand, the US dollar has continued to spiral downward, to new three-year lows – measured, amongst others, against the DXY index, which tracks the performance of the US dollar against the other nine G10 currencies. The US-dollar also slid to a three-year low against the Chinese Yuan, which is relevant because China is among the most important countries in terms of gold demand. In addition, we are seeing rising inflation expectations around the globe. All of these factors are working to boost the gold price. 

It has, however, thus far been unable to work its way back up to the last cyclical high of 1,357 US$/ounce of 8 September 2017. But at least now it is within sight.  

While gold traded at 1,318 US$/ounce when our last report was published exactly two weeks ago, it continually rose until Monday of this week, when it reached 1,344.50 US$/ounce. On the same day, the US dollar fell to a new cyclical low despite it being a US bank holiday. What followed was a downward development for the gold price to 1,325 US$/ounce yesterday. This morning, we are seeing a turnaround thanks to a weaker US dollar and in spite of further rising returns. Gold currently trades at 1,335 US$/ounce.  

Against the euro, the gold price taken a punch due to the disproportionate rise of the euro against the greenback. From 35.15 €/gram last Friday, the price of Xetra-Gold initially rose to 35.54 €/gram on 11 January before experiencing yesterday’s setback to 34.90 €/gram yesterday. It currently stands at around 35 €/gram. 

A number of important events are coming up. In Germany, the decision of the social democratic party’s conference could influence the euro. In addition, an ECB meeting is on next week’s agenda, and the US will come to a federal budget decision today. Also next week, the US president will visit the World Economic Forum in Davos, Switzerland. 

I wish all of our readers a relaxing and calm weekend and a successful start into the new week.  

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