US dollar at 20-year high

This week, bad news came in many shapes and sizes, with gold prices facing a fierce headwind. The trouble began last Friday. In his eight-minute speech at the Fed symposium in Jackson Hole, chairman Jerome Powell reiterated his determination to bring inflation rates back to “normal” levels.

Capital market interest rates and the US dollar reacted by rising sharply, while the stock markets took a dive. Since the beginning of this week, the ECB Governing Council has increased its calls for a strong interest rate hike of 75 basis points for next Thursday’s meeting. Bond yields in the Eurozone reacted by rising significantly, at times even more strongly than in the US, where yields on two-year US treasuries rose to a 15-year high of 3.54 per cent.

Euro under pressure

Under less extraordinary circumstances, the euro would have benefited from the rising yields and the significantly lower prices for natural gas and electricity since Monday. However, investors’ quest for safe haven currencies, due to recession fears and the at times massive setbacks for stock indices and commodities, weighed more heavily. Under the circumstances and compared to other currencies, the euro did hold up remarkably well, but the US dollar index reached its highest level since 2002.

This week’s rule of thumb: The stronger the bond yields and US dollar, the greater the losses for gold prices. The precious metal traded at 1,758 US$ per ounce early Friday last week and dropped to a weekly low of 1,689 yesterday afternoon alongside the week’s US dollar high. This morning at 8:00 CET, gold traded at a slightly firmer 1,702.

Xetra-Gold

The Xetra-Gold price also came under pressure. Trading at 56.70 € per gram last Friday morning, it plunged to a weekly low of 54.50 yesterday morning. At shortly before 8:00 today, Xetra-Gold traded at a somewhat recovered 54.90.

Following the US labor market data this afternoon, the US will kick off its long Labor Day weekend. Thursday’s ECB meeting will most likely be the market highlight of the coming week. 

I wish all readers a relaxing late summer weekend.