The spectre of a US interest rate hike

Market report Michael Blumenroth – 02.09.2016

Weekly market report

Just like the previous week, the current week has not been the most fortunate for precious metals. This, however, might still change today. But first things first.

Exactly a week ago, we were eagerly awaiting Janet Yellen’s Jackson Hole statement, which turned out to be ambiguous as usual. According to the Fed, the economic situation has seen a steady improvement during the past months, but hopes for a clear statement regarding the next interest rate hike were in vain. Yellen’s statement caused the gold price to decrease from 1,325 US$/ounce to 1,320 US$/ounce before the countermovement led to an intraday high of 1,342 US$/ounce – due to the fact that there was no clarity on a possible interest rate increase.

Just a few hours later, Fed Vice Chair Stanley Fischer answered to important questions in the affirmative: the first, whether the Fed might be planning an interest rate increase as early as September, the second whether there might even be two hikes this year. These statements on Friday – just before a long public holiday weekend in Britain – caught the markets off-guard. The US dollar took off, which as usual was not to the benefit of the gold price.

After gold closed last week just above 1,320 US$/ounce, it declined further in the course of this week – to a weekly low of 1,303 US$/ounce, also the lowest in about two months. Due to weak US economic data, the most precious of metals recovered to 1,316 US$/ounce yesterday, currently trading at 1,312 US$/ounce.

Since last Friday, the US dollar has recorded significant gains against the euro, keeping losses for Xetra-Gold investors relatively small. The decline from 37.75 €/gram a week ago to the weekly low of 37.64 €/gram reached yesterday – or to the current price of 37.71 €/gram – has been rather marginal.

Perhaps even more so than usual, investors are now eagerly anticipating US labour market data, released today. If they turn out very negative, chances of the Fed raising interest rates in September are nearing zero, which means the US dollar may collapse and gold prices may rise. If the data is positive, the US dollar could strengthen and gold come under pressure. There may also be weaker trading than usual since markets will be closed in the US and Canada on Monday because of a public holiday.
Please note that next week, this market commentary will be published on Thursday.

Wishing you all a sunny late-summer weekend.

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