US Federal Reserve meeting slows gold price down

Market report Michael Blumenroth – 02.05.2019

Weekly market report

Due to my schedule, this week’s market commentary comes a day early. Until Wednesday evening, it was a calm week for gold, also due to the fact that the major currency pairs, commodity currencies and yields/market interest rates of government bonds were largely immobile until then. 

On Tuesday, we saw better-than-expected economic data from the eurozone (GDP, labour market Data, German inflation rate), as a result of which the euro appreciated somewhat against the US Dollar. Immediately after the Fed meeting yesterday evening, the euro climbed to its weekly high of 1.1284, and gold prices also rose moderately. This was due to the fact that the Fed statement, published online at around 20:00, caused market participants to hope for interest rate cuts.

US interest rates remain unchanged

In the subsequent press conference, however, Fed Chairman Jerome Powell set the record straight by announcing that he did not expect an interest rates change in either direction in the foreseeable future. This caused the euro to relinquish its gains against the US dollar and the gold price to take a dive. A potential rate cut in the US has been priced out across the markets.

Gold price weakens

In US dollars, gold traded at 1,283 $/ounce on Friday morning last week. It climbed to a weekly high of 1,288.75 $/ounce on Friday evening and then moved between 1,278 $/ounce and 1,288 $/ounce until Wednesday afternoon. After Jerome Powell had answered the journalists' questions, however, the gold price slipped to its weekly low of 1,272 $/ounce. Just now (Thursday morning) the precious metal has hit its weekly low of 1,272 $/ounce.

In the course of the week up to yesterday afternoon, the euro rose step by step from 1.1120 to 1.1265 €/US$, but then lost half of its profits, now trading around 1.12 €/US$.

Xetra-Gold also down

The euro/US dollar exchange rate also had a slightly dampening effect on the price of Xetra-Gold. From 37 €/gram last Friday morning, it reached its weekly high of about 37.10 €/gram on Friday afternoon and then dropped to 36.50 €/gram. Xetra-Gold currently trades at about 36.50 €/gram (Thursday morning). 

The markets are now waiting for more economic data from the US Labour Market Report, to be published tomorrow, Friday, at 14:30 as well as for news in the US-Chinese trade conflict. Monday is a bank holiday in London.

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