Summer slump for gold

There were no real highlights on the markets this week. The gold market was also somewhat confined to the shadows, aside from the many gold medals (some of them surprising) won by the German team at the European Athletics Championships in Munich. Gold prices were generally supported by the still remarkably high inflation rates in some countries. In the UK, for instance, the consumer price index increased by double digits for the first time since 1982.

The central banks could react with a more restrictive monetary policy. Key rates in Norway were raised by 0.50 percentage points yesterday, in what was an unusual move for August. The US Fed and the ECB also indicated this week that the next rate hikes might be larger. The higher the key interest rates, and thus also the money market and capital market rates, the stronger the headwind for gold prices.

Electricity and gas prices explode – with consequences

The contracts for electricity to be supplied in Germany traded on the European Energy Exchange continued their almost exponential rise during the week, as did the prices for natural gas on the Dutch TTF futures exchange. The prices of some contracts have increased six-fold since August 2021, and the price of electricity supply in a year has doubled since the beginning of July. Concerns about a profound energy crisis in Europe have mounted this week, which of course impacts the euro exchange rate. The euro weakened significantly versus the US dollar again over the course of the week, heading towards parity. The US dollar appeared strong overall again, with its largest weekly gain in the last two months; this was not beneficial in any way for gold prices.

In US dollars therefore, gold prices suffered a moderate setback. Gold was listed last Friday morning at USD 1,792 per ounce, and by the end of day reached USD 1,803 per ounce. However, it has been heading back down since the beginning of this week. Although it remained around USD 1,780 per ounce until noon on Wednesday, it fell again a good bit yesterday due to the appreciation of the US dollar. Gold was trading at USD 1,752 per ounce as of 6.00 a.m. today, and at around USD 1,757 per ounce by 8.00 a.m.

Xetra-Gold

The price of Xetra-Gold fared much better, and actually increased during regular trading hours due to the euro's nosedive against the US dollar. While Xetra-Gold was trading at EUR 55.80 per gram last Friday morning and at a weekly high of EUR 56.45 per gram on Tuesday (a near repeat of the previous week!), it had dropped back to EUR 55.70 per gram by Wednesday evening. As of shortly before 8.00 a.m. this morning, Xetra-Gold is trading at around EUR 56.00 per gram.

Several leading indicators will be published next week that could provide insight into economic development in the US and the eurozone. The primary factor determining the direction of the markets will likely remain the central banks' monetary policy.

I wish all readers a relaxing weekend – perhaps even with a sprinkling of rain.