Slight gains in a mostly calm week

Market report Michael Blumenroth – 19.08.2016

Weekly market report

It seems that the markets have somewhat adapted to the balmy temperatures and we are, anyway, still at the height of the summer vacation season. Plenty of reasons and excuses for the current week to end on a rather flat note – it has certainly not been the most volatile in history.

The entire trading span of the past five trading days had already been covered on Friday. At the time of publication of last week’s report, gold was traded at 1,340 US$/ounce. As announced last week, Friday afternoon saw the publication of US retail sales data. They were rather meek, shrinking US investors’ expectations of an imminent key interest rate increase. This in turn fuelled the gold price, which rose to 1,355 US$/ounce. However, the week ended with profit taking and gold closed the trading week at 1,335 US$/ounce.  

This week, the market once again focused on the question whether and at what point the Fed will decide another key interest rate increase. In this regard, the most important events occurred on Tuesday between 2.00 and 2.30 p.m., first with the publication of US inflation data, which was slightly below expectations and caused the gold price to climb to its weekly high of 1,358 US$/ounce. Just minutes later, William Dudley, President of the Regional Federal Reserve Bank of New York, stated his expectations concerning the possibility of a base rate hike as early as on 21 September of this year. And although market participants remain skeptical, they did hear the message, loud and clear: investors are currently underrating the Fed’s intentions for an interest rate increase.  

Gold then fell back to 1,342 US$/ounce and traded between 1,340 US$/ounce and 1,355 US$/ounce for the rest of the week, currently residing approximately in the middle of this span, at 1,349 US$/ounce. A small weekly gain – not that bad, actually, considering the fact that we are in the middle of a slow summer month.    

The US dollar was weak throughout the week and suffered significant losses against a number of currencies such as the Swiss franc, pound sterling, yen and euro. This was due to the fact mentioned above, that investors deem a key interest increase by the Fed improbable for the near future. Against the euro, the greenback fell by approximately 2 per cent from 1.1130 to 1.1350.  This also affected Xetra-Gold, which declined from 38.70 €/gram a week ago and its weekly high of 38.97 €/gram to its current 38.30 €/gram.  

Most market observers are, however, expecting the US dollar to rise against the euro in the near future. We will have to wait and see how things develop.

Next week is a slow news week for economic data. We are most likely facing another calm summer week with little turnover and volatility. The most important topic across markets remains unchanged: the Fed’s future monetary policy.

To all readers, have a wonderful summer weekend, or better yet, relax in what remains of your summer holiday.

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