US dollar continuous decline – benefiting gold

Market report Michael Blumenroth – 21.07.2017

Weekly market report

The ECB meeting yesterday was certainly one this past week’s highlights. But even before that, currency markets saw some movement. As the US healthcare reform failed once again, some market observers are slowly losing hope that the current US administration is able to implement its ambitious plans (tax reform, infrastructure spending). As a result, the US dollar has continued to weaken against many other currencies. The US-Dollar-DXY-Index declined to its lowest since August 2016, having given up its entire gains since the US elections.

The ECB meeting had been eagerly awaited amid the central bank’s pending decision as to whether it will extend its government bond purchases beyond the end of the year. Mario Draghi yesterday did not offer any specific clues, however, he said that discussions about this would take place in autumn. The market took this as a sign that bond purchases would be reduced – though not discontinued entirely – from January 2018. Draghi did not voice concern about the euro’s strength during yesterday’s press conference, which led to further gains in the euro against the US dollar to 1.1677 (as of the time of this writing), the highest level since August 2015.

A weak US dollar and decreasing yields of US and European government bonds tend to be good for gold: denominated in US dollar, gold traded at 1,218 US$/ounce last Friday morning, continuously rising over the course of the week to the a weekly high of 1,248 US$/ounce (as of 9:15 a.m. Frankfurt time on 21 July). It is now trading lower by half a US dollar.  

The rise of the euro against the US dollar by two cents during the week had a less positive effect on the price of Xetra-Gold. However, denominated in euro, gold is still trading slightly higher, having climbed from 34.35 €/gram last Friday to a weekly high of 34.70 €/gram right after the end of the ECB meeting and before Draghi’s press conference. As the euro took off, the price of Xetra-Gold declined slightly to 34.45 €/gram.

Next week will see the meeting of the US Federal Reserve’s Open Market Committee. It is unlikely to produce market-moving news – rather, this is expected to happen during the September meeting – but you never know… It will also be interesting to see whether the US dollar will continue to decline, and the euro to advance, further.

I wish all readers a relaxing and summery weekend – and a nice holiday, if you are lucky to have one coming up. I will not be able to write a market report next week, but will be back with news thereafter.

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