Slight signs of recovery

This week, all that glittered was, once again, not gold, but the precious metal did manage to perform well under the circumstances. While last week was heavily under the influence of US inflation data – both consumer and producer price inflation remained at unexpectedly high levels – the week now ending has been more of a transitional one, with a low supply of economic data or central bank meetings.

Record sentiment on the stock markets

Significant this week, however, was the extreme risk aversion across stock markets, which have been in record mood since Wednesday evening due to the quarterly figures and outlook of a prominent tech company. Be it the Dow Jones index, the S&P500, the Nasdaq100, the DAX or the Nikkei225 in Tokyo: they all reached new all-time highs. The strong propensity for risk took some of the wind out of the US dollar’s sails. Leaving other influencing factors aside, currencies such as the euro often benefit from a favourable risk sentiment on the markets, while currencies such as the US dollar, the Swiss franc or the yen are in demand when risk aversion dominates.

Dampened interest rate cut expectations

In terms of economic data, the purchasing managers’ indices, a much-noticed leading indicator on the markets, has thus far been the highlight of the week. They turned out better than expected for the eurozone – with the exception of those for Germany – and had a supportive effect on the euro. As in the previous week, expectations regarding the central banks’ monetary policy changed significantly over the course of the week. In early January, the futures markets had still been pricing in six to seven interest rate cuts, starting in March and of 0.25 percentage points each, by both the Fed and the ECB for 2024. Money market expectations have meanwhile lowered to three (Fed) and just under four (ECB) starting in June. As a result, yields on US and eurozone government bonds continued to rise over the course of the week, providing some headwind for gold – an investment paying neither interest nor dividends.

Gold regains 2,000 US$ per ounce mark

On Wednesday last week, the precious metal had dropped to 1,985 US$ per ounce, thus far its lowest level of the year, but recovered to above 2,000 on Thursday. It has since remained above this threshold, apart from a few minutes following the publication of unexpectedly high US producer prices on Friday. Gold rose to a weekly high of just under 2,035 on Wednesday and has been trading sideways or slightly lower since then. It kicked off trading this morning at 2,021 US $ per ounce.

... and Xetra-Gold trades above 60€ per gram

Xetra-Gold is also trading slightly higher than last week Wednesday, when it dropped to 59.55 € per gram. This week’s high this past Wednesday was 60.45, and it was expected to start trading this morning at around 60.05.

Coming up next week, month-end dispositions could play a role on the markets. Apart from the so-called PCE core rate, the inflation measure preferred by the Fed, there will be little price-relevant economic data in the coming week. Market appetite for risk could therefore remain decisive for the further development of gold prices in the short term.

I wish all readers a sunny and relaxing weekend.