The Fed does not dare

Market report Michael Blumenroth – 23.09.2016

Weekly market report

The ending week was dominated by the Japanese and US central bank’s meetings. Japan did not see a further lowering of the key interest rate into the negative, but the Bank of Japan clearly reserved the right to further monetary liquidity measures until inflation has risen to above two percent, which is miles away from the current situation. The decision was greeted enthusiastically across the commodities markets, and the effects were especially palpable among precious metals. They also benefited from the US central bank’s decision to leave the key interest rate untouched. In addition, the Fed also lowered its interest rate forecast for the next two years. While it did clearly indicate an interest rate hike for its December meeting, market participants have been left disappointed too often this year – as a result, the respective markets remained unenthusiastic, pricing in an increase in December with a mere 60 per cent probability. This is due to the fact that at the beginning of the year, the Fed had set much higher standards, announcing four increases for the year of 25 basis points each. 

Be that as it may, the commodities markets were appreciative of the Fed’s careful tactics. While gold was traded at 1,315 US$/ounce last Friday, at its lowest even at 1,306.50 US$/ounce, it moved within a very narrow trading margin of around 1,315 US$/ounce on Monday and Tuesday in expectation of the central bank meetings. Following the meeting of the Bank of Japan, it picked up speed and, alongside the weakening US dollar, was able to climb to its weekly high of 1,343.50 US$/ounce after the Fed meeting. After somewhat stabilising yesterday afternoon, the most precious of metals slacked off slightly and currently trades at 1,336 US$/ounce, almost 2.5 per cent above its price exactly a week ago.

Xetra-Gold has developed accordingly. It rose from 37.60 €/gram a week ago to 38.38 €/gram on Wednesday and is currently traded at roughly 38.25 €/gram.

The focus is now slowly shifting to the US presidential race – the first live debate will be broadcast on Monday. We are also closely watching US economic data for further indicators regarding the Fed’s interest rate policy.

But first: a beautiful Indian summer weekend to all our readers.  

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