Waiting for new impulses, Gold is holding up well

Market report Michael Blumenroth – 30.07.2019

Weekly market report

Back from our holiday, we are taking a look at the markets during the last two weeks as it has been that long since our last report was published.

The gold price, impressively, has remained consistently above the 1,400 $/ounce mark throughout and a new six-year high of 1,453 $/ounce was reached on the evening of 18 July.

Geopolitical uncertainties make for cautious investors

Again, the usual suspects were at play: on the one hand, gold was in demand as a safe haven. Uncertainty regarding the conflict with Iran over oil tanker traffic in the Strait of Hormuz, stagnating progress in US trade disputes, and the potential increased likelihood of a hard Brexit following Boris Johnson's inauguration as British Prime Minister all contributed to widespread caution among investors.

Bunds hit record lows

In addition, many investors continue to rely on easing monetary policy by the central banks. Last week, the ECB promised new liquidity injections for September, which in turn caused new cyclical lows in yields/market interest rates on European government bonds. Ten-year Bunds touched new record lows of minus 0.422 per cent. At the end of last week, all federal loans with a term of up to 20 years were negative. The Minister of Finance’s joy is the interest-hungry investor’s sorrow. As I have often stated, gold prices, which compete with the interest rates of safe government bonds, also benefit from lower interest rates.

The US Federal Reserve will be closely watched on the evening of 31 July: most analysts expect a slight lowering of key interest rates. In the wake of fixed gold prices, silver and platinum have also made notable gains within the past two weeks. 

Significant rise for gold price in US dollars

In US dollars, gold traded at 1,410 $/ounce on Friday morning last week. It received the greatest boost from 17 to 18 July, primarily due to the above-mentioned conflict in the Gulf of Hormuz. On the 17th, gold had receded to its two-week low of 1,400.25 $/ounce in the morning, only to jump to its six-year high of 1,453 $/ounce on the late evening of the very next day. The highs and lows of the past two weeks were thus spectacularly achieved within a mere 36 hours. Since then, the gold price has moved somewhat sideways between 1,440 and 1,410 $/ounce – and in the past week, silver has more or less stolen the show. At the time this commentary was written on the evening of 29 July, gold traded in the middle of this range at 1,426 $/ounce.

Gold in euros follows suit

After Mario Draghi announced further ECB monetary policy measures for September, the exchange rate of the euro against the US dollar receded to a two-year low of 1.1101 €/US$ last Thursday and since then has recovered only slightly. By and large, the currency pair continues to move sideways, so that Xetra-Gold has mirrored the development of the gold price in US dollars. From 40.20 €/gram on Friday two weeks ago and 40.15 €/gram as that day’s low, it initially receded further on 17 July before making an upward turn on 18 July, which ended on 25 July, the day of the ECB meeting, at 41.48 €/gram. This was also a six-year high. With the slight recovery of the euro, the gold price has since retreated slightly and currently stands at approximately 41.00 €/gram.

In the coming days we will see the publication of a large amount of key economic data, such as German consumer prices and GDP development in the euro zone. As already mentioned, the Fed meeting on Wednesday is likely to be of major interest; especially the possible odds of further interest rate cuts.

Stay tuned for Friday’s next commentary.

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