Setting new records

Market report Michael Blumenroth – 12.04.2024

Weekly market report

It might be regarded as somewhat scary: gold prices continue to soar to levels previously unimaginable by most market observers. Virtually across currencies, the precious metal traded at new record highs, while several factors might have led to a slowing down.

Strong US economy

Firstly, the March US labour market report published last Friday indicated an extremely robust US economy, beating forecasts in every respect. Market players accordingly backpedalled their expectations of any interest rate cuts by the Fed this year. US government bond yields rose, as did the US dollar temporarily. Still, gold prices held their ground and even gained a further 25 US$ per ounce on Friday afternoon.

US CPI, inflation rate also above expectations

The US Consumer Price Index for March caused strong market movements yesterday with a 3.5 per cent rise compared to the same month last year. Analysts had forecast an average inflation rate of 3.4 per cent. In February, it had stood at 3.2 percent. The core inflation rate, adjusted for energy and food prices, remained at 3.8 per cent, withstanding the predicted fall to 3.7. Compared to the previous month, both the (overall) inflation rate and core inflation surpassed expectations at 0.4 per cent. The three-month rate of price increases has climbed to 4.6 per cent projected on the year as a whole, which is well above the Fed’s inflation target of 2.0 per cent. 

Price gains for US Treasuries 

As a result, a Fed rate cut in June was largely priced out on the interest rate futures markets; a first rate cut is expected for September or November. Yields on two-year US Treasuries rose intermittently by more than 20 basis points to 4.96 per cent, i.e. the highest level since November. Yields also rose noticeably for longer maturities. The US dollar appreciated significantly, by around 1 per cent against the euro.

Gold prices remain unimpressed

Astonishingly, gold prices dropped noticeably for a short intermission, but recovered just as quickly, now trading just over 1 per cent below the new record high reached on Tuesday, a remarkable achievement in light of the current environment.

Last Thursday morning, the precious metal still traded at 2,299 US$ per ounce, just below the magic mark of 2,300. On Friday, despite the strong US labour market data, it soared from its daily low by roughly 60 US $ per ounce to 2,330, reaching unimagined heights and climbing even higher on Tuesday to a new record high of 2,365.25. After the US inflation data, it weakened to 2,320. Following an immediate recovery to 2,352 (which probably left most traders baffled), European trading today, on Thursday at 8:00, was expected to start at around 2,340 US$ per ounce, quite a rise week on week.

In euros, gold reached 2,187 € per ounce yesterday – also a new record high. Xetra-Gold climbed from 68.10 € per gram last Thursday morning to 70.25 yesterday afternoon. This morning, it is likely to start the day at around 70.0, which would also represent a noticeable gain on the previous week. 

Outlook: gold has further upside potential

Today’s ECB meeting is unlikely to have a significant impact on the financial markets, as it is expected to meet analysts’ expectations and leave key interest rates unchanged once again. Many traders will be looking ahead to the US producer price index, also set to be published today. However, gold prices seem likely to forge ahead ignorant of macroeconomic data. Positional smoothing and the options and futures markets could continue to set the direction. Last week’s conclusion remains valid: although setbacks due to profit-taking or similar reasons can be expected at all times, gold should have further upward potential in the medium term.

I wish all readers a relaxing and sunny weekend.

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