Strong US dollar and rising US returns weigh down gold prices

Market report Michael Blumenroth – 06.10.2017

Weekly market report

What we have seen this week was more or less a déjà vu of the previous week. Just as it did during the last week of September, the US dollar remained strong throughout the first week of October. The US dollar index DXY, which measures the relative strength of the US dollar against the other new G10 currencies, rose by 1 per cent. This was due to the further rising expectations of a major US tax reform as well as a number of statements made by Fed representatives in confirmation of the planned interest rate hikes for December 2017 and during 2018. In February 2018 when Janet Yellen’s term ends, the Fed will see the introduction of a new chairperson. Last week, Kevin Warsh came onto pole position for the job. As he is known to be averse to lose monetary policy, the news gave the US dollar further tailwind. In combination with rising US returns (market interest rates), the gold price suffered.

The euro also came under pressure after the Spanish referendum; global investors were deterred in light of the instability and retreated, at least temporarily, from southern Europe.

In US dollar, gold still traded at 1,288 US$/ounce. Although there was a minor pushback on Wednesday, gold continuously dropped throughout the week, to 1,267 US$/ounce. It currently trades slightly stronger at 1,269 US$/ounce. Generally speaking, price movement was very subdued throughout the week.

The weaker euro against the US dollar held this week’s losses in check. From 35.10 €/gram last Friday, the price of Xetra-Gold dropped to 34.80 €/gram on Wednesday afternoon. During the course of the week, it rebounded to 35.05 €/gram and currently trades at 34. 90 €/gram, which is marginally higher than two weeks ago.

This afternoon, we expect the publication of US labour market data. However, due to the hurricanes Irma and Harvey, the data’s significance is limited. Rather, the markets are eagerly awaiting news on the US tax reform and the new Fed chair.

I wish all of our readers a relaxing and calm weekend. 

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