Record high was in sight

Following the turbulent market movements on Monday, 5 August, the markets progressively calmed down. On the stock markets in particular, the significant price losses from the beginning of the month have since been largely made up for.

After a very quiet start to the week, this week’s market sentiment was brightened by US inflation data, which came in below expectations – increasing the likelihood of a turnaround in interest rates by the Fed in September. The producer price index was up just 0.1 per cent in July compared to the previous month. The core rate, adjusted for energy and food prices, stagnated compared to the previous month. The index constituents included in the Fed’s inflation measure for monetary policy decisions, the so-called PCE core rate, also point to a further decline in price pressure in the US.

Sound prospects for Fed key interest rate cut

The data on US consumer price inflation also turned out slightly lower than expected, although market observers were somewhat irritated by the significant rise in rental prices in July. Overall, a Fed interest rate cut is now widely expected for the meeting on 18 September. 

The result has been falling yields on US government bonds and a moderately weaker US dollar. This is a constellation that also tends to support gold prices. In addition, the calming of the markets also meant that many investors who had sold their profitable gold positions at the beginning of the month to cover their losses across other markets are now likely to show renewed interest in gold.

Gold soars

As a result, gold prices have risen considerably since last Thursday, missing their record high from mid-June by a small margin. The day may, however, still come – and, in addition to their sentimental value, the gold medals won at the Olympic Games in Paris could possibly have an even higher material value in future.

Last Thursday morning, the precious metal traded at 2,394 US$ per ounce. By the end of the week, it had already worked its way up to 2,430, and at the beginning of the week, gold picked up speed: with a rise to 2,478.50 yesterday morning, it was a near miss of the record high 2,483.50 from 17 July. After no further upward movement, despite the weaker US dollar and following the publication of US consumer price data, we saw some profit-taking. Gold intermittently lost roughly one per cent of its daily highs. 

At around 7:00 this morning, gold will start European trading at around 2,453 US$ per ounce.

Strong US dollar slightly dampens Xetra-Gold

The Xetra-Gold price also performed well week on week, although the rise of the euro against the US dollar above the 1.10 mark slowed it down slightly. It initially rose from 70.40 € per gram last Thursday morning to 72.65 on Tuesday afternoon. The stronger euro then stole some of its thunder. This morning, Xetra-Gold is likely to start the day at around 71.65 € per gram.

Currently, expectations regarding the Fed monetary policy are the market’s main drivers. While a September interest rate turnaround seems to be a foregone conclusion, the question remains: To what extent will the Fed cut interest rates and what happens after this first step? The more aggressive the move, the more tailwind it would provide for gold prices in the medium term.

I wish all readers a sunny weekend with time spent outdoors – after all, the days are already getting shorter.