New month, new records

As summer is coming to an end, with the days getting shorter and the nights cooler, the gold price is taking off – as is so often the case in autumn.

Broadly speaking, two factors are currently boosting gold: the Fed interest rate cut cycle, which is likely to resume soon, and the traditional role of the yellow metal as a haven.

US inflation within expected range

At last Friday’s annual Jackson Hole gathering, Fed Governor Jerome Powell had indicated that the Fed could cut interest rates in September, which the interest rate futures markets have since factored in as a near-certainty. Since gold pays neither interest nor dividends, dropping interest rates usually provide tailwinds for gold prices. Economists refer to this as falling opportunity costs. Last Friday saw the publication of the core US PCE rate for July, the inflation measure on which the Fed bases its monetary policy. Although it rose slightly, the increase remained well within the range of expectations. US economic data published on Tuesday and Wednesday indicated an increasing weakness of the US labour market. The financial markets interpreted this as a further signal that an interest rate cut is likely to happen on 17 September.

US (monetary) policy remains in focus

Market uncertainty has continued to grow in recent days, prompting investors to seek safe investments. Court rulings have cast doubt on Trump’s authority to impose the large number of tariffs without the involvement of Congress, as has happened in recent months. Another court is examining whether he is authorised to dismiss a Fed Governor, as he has done last week. Markets remain deeply concerned about increasing political influence on Fed monetary policy decisions. Finally, on Tuesday, there were sharp price losses for long-term British government bonds, which also spread to bonds from other European countries and US Treasuries, fuelling ongoing fears of excessive global government debt.

Gold prices hit record highs

The above developments boosted gold prices, which rose from 3,390 US$ per ounce last Thursday morning to 3,450 by the end of the week. Despite the US Labor Day holiday, gold continued to climb on Monday, and on Tuesday the record high of 22 April at 3,500 US$ per ounce was surpassed and virtually pulverised with a rise to 3,578.50 yesterday afternoon. The first profit-taking followed, and gold started today’s trading at around 3,530.

The Xetra-Gold price mostly moved in parallel with the US dollar prices, as the euro-US dollar exchange rate fluctuated only slightly. From 93.65 € per gram last Thursday morning, it had risen to around 94.70 by the end of the week and climbed to 98.30 yesterday afternoon, also a record high. If the 8:00 price holds, Xetra-Gold will start trading today at 97.40 € per gram.

Tomorrow, Friday, the US labour market report for August is scheduled for release at 2:30 p.m. and might trigger a strong market reaction. If it turns out weaker than expected, gold should receive further tailwind. If it is significantly stronger, it could temporarily slow down gold.

I wish all readers a golden weekend.