This week: weakening prices and anticipation of a statement by Janet Yellen

Market report Michael Blumenroth – 26.08.2016

Weekly market report

Until now, the week has been far from perfect for gold, but it is not yet over, and as a firm believer in our local premier league football club Eintracht Frankfurt, I am certainly aware of the fact that there are worse setbacks than a weekly loss of below 2 per cent, and that what goes down must come back up.

Trading this week was mostly adapted to outside temperatures: lethargic. With few exceptions, we have seen narrow trading margins among the major currencies and across the majority of stock markets. During the past 30 days, daily volatility in gold has been the lowest in any 30-day period since October 2014.  

With the exception of a few Fed representatives indicating that the next US key interest rate increase will still occur this year and a sharp depreciation of the South African rand (due to political reasons, making gold sales for South African producers all the more attractive), the week held few fundamental reasons for gold to come under pressure.  

On Wednesday afternoon, however, shortly after the start of trading on the futures markets, the US gold price crashed. Within a single minute, more than 10,000 futures contracts in gold had been sold, an equivalent of 1 million ounces or approximately US$1.5 billion. A transaction this large is peculiar (and definitely not especially clever, due to its destructive impact on the gold price). In this magnitude, the US$10 old price loss seems almost marginal.  

Exactly a week ago, gold was traded at 1,349 US$/ounce. On Wednesday afternoon, it had fallen marginally to 1,340 US$/ounce and then quickly plummeted to 1,330 US$/ounce, reaching its weekly low yesterday at 1,318.50 US$/ounce. It currently trades at 1,325 US$/ounce.

In face of the past week’s cheerless trading, the US dollar was able to gain ground and Xetra-Gold depreciated less than the commodity Gold in US dollar. From 38 €/gram exactly a week ago, it fell to 37.58 €/gram at yesterday’s weekly low and its current price of 37.75 €/gram.  

In its business section, today’s major German daily newspaper Frankfurter Allgemeine Zeitung is also focusing on gold, noting that in spite of the current slump it has climbed 25 per cent since the beginning of the year.

During her speech today at 4 p.m. CET, Janet Yellen is expected to comment on the next key interest rate increase, but it seems unlikely that a precise statement will be made. Next week will see the publication of US job market data as well as other interesting economic data.   

A wonderful sunny summer weekend to all our readers.  

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