New quarter – new hope

Market report Michael Blumenroth – 01.04.2021

Weekly Market Report

Loyal gold investors will be happy to leave the first quarter of 2021 behind. Gold in US dollars saw a ten per cent depreciation over the past three months, the worst start to any year since 1982. A look back, however, also offers some reason for optimism; in 1982 the gold price lost 19.5 per cent within the first quarter, but had gained around 15 per cent at the end of the year compared to the previous year after a rapid race to catch up. There is, thus, no need to despair.

US yields, dollar and stocks rise

The first quarter’s weakness was due to obvious reasons. The yield on ten-year US government bonds climbed from 0.9 per cent at the beginning of the year to a 14-month high of 1.77 per cent this week. This had a dampening effect on gold demand, as the precious metal yields neither interest nor dividends. Additionally, also due to rising yields in the US, the US dollar has gained around four per cent since the beginning of the year, both against the euro and in aggregate against the other G10 currencies. Moreover, with many equity indices around the globe hitting new all-time highs in the first quarter, a number of major investors shifted part of their portfolios to the stock markets. Holdings of gold-backed exchange-traded products lost roughly 30 per cent of their gains from last year. 

Gold in US dollars slightly weaker week-on-week

At least the gold price was largely able to make up for the temporary, significant losses over the course of the week. It initially rose from 1,728 US$ per ounce last Friday morning to 1,737 on Friday afternoon. However, with the new 14-month highs in US yields and the four-and-a-half-month high in the US dollar, the precious metal slipped below 1,700 on Tuesday, resetting at the previous weekly low of 1,678. With US yields dropping somewhat and the US dollar weakening slightly, the gold price recovered yesterday afternoon and currently trades at 1,715.

Xetra-Gold also loses slightly

As a result, Xetra-Gold also saw slight depreciation. Within regular trading hours, it initially rose from 47.15 € per gram last Friday morning to 47.35 in the afternoon but then retreated to 46.00 on Tuesday afternoon. At the opening of trading today, Xetra-Gold traded somewhat firmer around 47.10.

US labour market data is up for publication tomorrow, on Good Friday. If the results come as a surprise to the markets, which will be seeing limited activity due to the holiday, yields and the US dollar exchange rate will react accordinly, which in turn will also affect the gold price.

We wish all readers a relaxing and sunny Easter weekend.

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