Tailwind for gold continues

Market report Michael Blumenroth – 05.05.2023

Weekly Market Report

Star Wars fans celebrated their unofficial holiday yesterday, 4 May (“May the “fourth” be with you”). In other news from yesterday, gold prices very nearly reached record highs – but not quite (yet).

First and foremost, the precious metal benefited from market expectations regarding the future monetary policy of the US Federal Reserve. As forecast, the US monetary watchdogs raised key interest rates on Wednesday evening by 0.25 percentage points, i.e. 5.00 to 5.25 per cent, the highest level since 2007. At the same time, however, Fed Governor Jerome Powell hinted at the possibility of an interest rate pause in June. He emphasised that future decisions would depend on upcoming data and that further interest rate hikes might lie ahead. After the meeting, however, the interest rate futures markets priced in their expectation that the Fed cycle of interest rate hikes was now over, and interest rate cuts might even happen in the second half of the year – possibly a somewhat overambitious expectation.

Lower yields for US and European government bonds

Under normal circumstances, lower key interest rates entail lower government bond yields. Yields on two-year US Treasuries dropped from 4.14 per cent at the beginning of the week to 3.70 per cent yesterday. Lower yields and a weaker US dollar tended to provide a tailwind for gold prices, especially since yields on European government bonds also dropped yesterday, following the ECB’s slowing of the pace of interest rate hikes from 0.5 to 0.25 percentage points.

While gold traded at 1,986 US$ per ounce on Friday morning last week and 1,976 in the afternoon, it rose to around 2,063 yesterday, a new 14-month high and close to the record high of 2,075. This morning at 8:00, it traded slightly lighter at around 2,047 US$ per ounce.

Xetra-Gold briefly above 60 €

The Xetra-Gold price also made substantial gains, from 58.00 € per gram last Friday morning to 60.10 yesterday afternoon. This morning, Xetra-Gold was expected to kick off trading slightly lower at around 59.60, still a sound weekly gain.

This afternoon, the markets will keep an eye on April’s US labour market data. US consumer price data is scheduled for publication next Wednesday. Both might move the markets – especially if the actual data deviates strongly from expectations.

I wish all readers a happy and relaxing weekend.

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