Weak US data, strong gold

Market report Michael Blumenroth – 04.07.2024

Weekly Market Report

The start of the second half of the year did not bring any dramatic price changes on Monday and Tuesday. The bond markets saw yields dropping off, while the euro gained traction against the US dollar and most other G10 currencies. In commodities, oil prices were the only standout showing some strength. The data published last Friday on the core US PCE rate, which is the Fed’s preferred measure of inflation, matched analyst expectations. Hence, there was no immediate need for market participants to take action.

US economy: weak ISM index

This changed yesterday afternoon. On a short US trading day due to today’s Independence Day holiday, data on the ISM services index was published at around 4:00 p.m. It has declined more sharply than expected to its lowest level since 2021 and slipped below the 50-point mark, signalling a contraction in economic activity among US service providers in the coming months. While this may not actually happen in real economic terms, the data indicates a slowdown in the US economy.

As a result, US government bond yields saw a sharp decline. The S&P500 reached new highs, while the US dollar weakened and gold prices strengthened.

Last Thursday, gold traded at 2,300 US$ per ounce and had climbed to around 2,330 by the end of the week and half-year end. Prices fluctuated around this level until midday yesterday, before a jump to around 2,365 following the above-mentioned data. Since then, gold prices have only retreated slightly. At around 7:00 this morning, the precious metal was expected to kick off European trading at around 2,357 US$ per ounce.

Xetra-Gold climbs above 70 € per gram

Xetra-Gold initially rose from 69.15 € per gram last Thursday morning to 70.25 on Friday. Due to the noticeably firmer euro/US dollar exchange rate on Monday, it initially fell back to 69.40 before rising to its weekly high of 70.35 yesterday afternoon. This morning, Xetra-Gold is likely to start the day at around 70.25 € per gram.

Gold has thus continued its six-week trajectory within a well-defined trading range of almost exactly 100 US$ per ounce. The US labour market data, due to be published tomorrow, and June’s US consumer price trend data could have a significant impact on whether the successful start to the second half of the year can be followed up. The weaker they turn out, the more potential there is for falling yields and therefore possibly rising gold prices.

I wish all readers a relaxing weekend with two exciting evenings of football.

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