Strong US dollar weighs down gold prices

Market report Michael Blumenroth – 29.09.2017

Weekly market report

Following last week’s Fed meeting, the gold price came under pressure and has been unable to rebound since.

The main reason was the continued strong US dollar performance alongside rising returns/market interest rates for US government bonds. Meanwhile, the next potential Fed interest rate hike, which just recently had been priced out quite clearly, now sees a 70 per cent probability in its favour among market participants. This supported the US dollar, as did the announcement of a major US tax reform. Should it actually pass, it will cause a significant spur in growth, albeit temporary, for the US economy.
A rising US dollar and upward moving US market interest rates, combined with new record highs for US equity indices of course made for a hostile environment for the gold price.

The week had, however, kicked off friendly enough for gold investors: Monday morning saw significant buying activity following North Korea’s sabre rattling towards the US. From 1,297 US$/ounce on Friday last week, the gold price climbed to its weekly high on Tuesday evening, to 1,313.50 US$/ounce. A rising US dollar and the disappearance of the North Korean conflict from the news tickers then caused the gold price to continuously dwindle, reaching 1,278 US$/ounce on Thursday. During the course of the day and last night, the price rebounded slightly and has currently settled at 1,288.50 US$/ounce.  
Against the euro, gold stands slightly firmer than last week, due to the weaker European currency.

From 34.85 €/gram last Friday, the price of Xetra-Gold climbed to 35.85 €/gram on Tuesday morning. During the course of the week, it again weakened and currently trades at 35.10 €/gram, which is .25 €/gram above the end of last week’s price level. 

Next week, the markets will again focus on the question of whether the Fed really will proceed to step up interest rates, whether the tax reform announced by President Trump has any chance of passing, and whether ECB representatives will make any statements regarding their monetary policy.

I wish all of our readers a pleasant weekend. On Tuesday, we will be celebrating the German Unity Day, a bank holiday, so many of us taking off Monday as well.

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