Small number, huge impact

Market report Michael Blumenroth – 10.06.2016

Weekly market report

In last week’s commentary, we raised the question whether the gold price had finally bottomed out. Just hours after publication, it was answered in the affirmative. This was due to the US labour market data, more precisely the sharp slowdown in hiring, which was abysmal in view of the much more optimistic forecasts. While May data was significantly below the expectations of previously polled analysts, data for April and March was also revised downwards. 

The ensuing effects both boosted the gold price. Firstly, expectations for a key interest rate increase by the Fed in June or July were almost entirely priced out, with the assumption gaining ground on Monday that it would postpone further increases, when Janet Yellen remained extremely vague on the subject.

Secondly, the weak US labour market data and the pricing out of the interest rate fantasies significantly weakened the US dollar. It depreciated against almost every other currency, not only the Euro and Swiss Franc, but also the currencies of major gold producing countries such as Canada, Australia and South Africa, which in turn made gold sales more unattractive for these countries but the gold price cheaper for buyers.   

From 1,212 US$/ounce prior to the labour market data’s publication, the price climbed by approximately 3 per cent to 1,244 US$/ounce. At the beginning of the new week, we saw some profit taking before gold took its next upward steps on Wednesday and Thursday to 1,271 US$/ounce.

In spite of the stronger Euro against the US dollar, Xetra-Gold investors also have reason to rejoice. While it traded at 34.95 €/gram last Friday, it climbed to 36.10 €/gram yesterday and is currently holding its ground at 36.00 €/gram.

Another Fed meeting is scheduled for next week, but the market is holding its breath in anticipation of another event: the British vote regarding its EU membership on 23 June which is the cause of instability in the market. On the one hand, it could cause gold to remain a sought-after safe haven; on the other, the US dollar might be strengthened for similar reasons. 

I wish you all a sunny and calm weekend. 

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