Slight weekly gain

The risk premium, which may still have been priced in on some markets at the end of last week, had likely evaporated by the beginning of this week, which was shortened by Monday’s bank holiday. Finally, on Saturday evening, US President Biden and the speaker of the Republicans in the Senate, McCarthy, had agreed on a compromise regarding the US debt ceiling. The residual risk of failure of the Congress vote was also reduced to almost zero on Wednesday with the successful vote in the House of Representatives. The Senate is now the only remaining small hurdle to the passing of the compromise.

ECB policy and interest rate development

The markets can now turn their attention back to other issues. First and foremost, these are monetary policy, monetary policy, and – you guessed it – monetary policy. Although inflation rates in Germany, France, and Spain were lower in May than analysts had previously expected, it is considered almost certain that the ECB will further raise interest rates. Some market players expect them to turn out less aggressive than currently priced in. Market consensus, however, is an expectation of two more rate hikes of 0.25 percentage points each.

Next US rate hike by the end of July?

Continued strong US labour data could, in turn, cause the Fed to pause interest rate hikes the week after next, but resume action in July. Whereas the interest rate futures markets had priced in an end to the US rate hike cycle in the US with the increase on May 3, we saw the tides turn this week, with a priced-in 100 per cent probability for a further rate hike by the end of July. Although these expectations were deflated by some members of the Fed interest rate committee, none of the officials wanted to rule out a further interest rate step as early as June.

Strong US dollar weighs on gold price

With the pricing in of a further interest rate increase and, above all, the pricing out of interest rate cuts in the second half of the year, the yields of US government bonds and the US dollar were boosted by strong tailwinds. The euro dropped to its lowest level against the US dollar since 20 March. Yields on two-year US government bonds initially rose further following the debt dispute compromise, an unfavourable situation for the precious metal. However, gold did recover somewhat over the week, especially as the US dollar also backpedalled.

While gold was still trading at 1,951 US$ per ounce on Friday morning last week, it had dropped to a weekly low of 1,932 by Tuesday when US yields peaked. It has since been on the rise and reached 1,983.50 per ounce last night. At 8:00 this morning, gold traded at a firm 1,981.

The Xetra-Gold price was also supported at times by the depreciation of the euro against the greenback, trading at 58.45 € per gram on Friday morning and 58.25 on Friday afternoon.

The weaker euro then provided a temporary boost to a weekly high of 59.55 on Wednesday. Xetra-Gold was expected to start trading this morning at around 59.15.

US labour market data for May is scheduled for publication this afternoon. Next week might be a transitional one before both the Fed and ECB announce their interest rate decisions the following week.

I wish all readers a happy and sunny weekend.