Strong US dollar and fears of recession

We have seen a rather suboptimal start into the second half of the year, not only (temporarily) for stock investors. Commodity markets in particular recorded a number of severe setbacks to levels last seen at the beginning of the Coronavirus pandemic (copper) or below the mark of 100 US$ per barrel (both Brent and WTI oil). At the same time, capital market interest rates dropped significantly, while many currencies, as well as the euro against the US dollar, fell to 20-year lows.

The causal chain: central banks must continue to respond with robust key interest rate hikes due to the persistently high inflation rates. These rate hikes, in turn, could put the brakes on the already fragile economies around the globe. It seems that China has not yet succeeded in its Zero-Covid strategy, and for the US, many analysts expect a recession by 2023, at the latest. For Central Europe, market observers predict an energy crisis if natural gas supplies are interrupted in the coming months.

Recession fears weigh on gold price

High inflation rates continue to speak in favour of gold – as do geopolitical tensions. However, many market players seem to have sold commodity positions this week due to recession fears – the attitude seeming to be “whatever the cost” – which also hurt gold. In addition, the significant appreciation of the US dollar slowed down gold prices in US dollars.

The precious metal was trading at 1,798 US$ per ounce on Friday morning last week. From Friday afternoon, it kept afloat at around 1,810 until Wednesday morning. After the Americans returned from their long Fourth of July weekend, commodity and gold prices crashed. Gold dropped to 1,732 on Wednesday afternoon. Yesterday, commodities and risk appetite recovered somewhat, and gold traded at a more robust 1,742 US$ per ounce at 7 this morning.

Xetra-Gold: weak euro dampens losses

The Xetra-Gold price was supported by the significantly weaker euro exchange rate; while Xetra-Gold traded at 55.20 € per gram on Friday morning, it initially rose to 56.40 on Tuesday afternoon due to the weak euro. However, the drop in US dollar gold prices also affected gold in euros, and Xetra-Gold fell to 54.80. This morning (as of 7:00) it should be trading somewhat firmer at 55.15.

Recession fears are likely to persist a while longer, as is the high volatility on the markets. Gold prices could remain under pressure in the short term, with a chance of more stability in the medium term. This afternoon, market participants will focus on US labour market data.

I wish all readers a beautiful, sunny weekend.