Week of the central banks shakes up gold prices

The highly anticipated meetings of the Fed, the ECB and the Bank of England triggered strong market movements. The Fed and ECB in particular (and to a lesser extent the Bank of England) sent out the message that central bankers continue to take inflation, which may have peaked but remains uncomfortably high, seriously. Further interest rate hikes are therefore likely (the ECB in particular already expressed its intention to commit to a further 0.5 percentage point hike in key rates on 16 March). Central banks will begin to reassess the situation and monetary policy at their respective March meetings. The markets interpreted this as a signal that an end to the respective interest rate cycle was in sight and thus, in the medium term, key interest rates might once again be lowered – especially in the US. Bond markets saw the strongest market movements.

Government bonds on downward slide

The development for government bond yields has been likened to a black hole. Ten-year Bunds yielded 2.07 per cent yesterday evening, 0.21 percentage points lower than the previous evening. Yields on ten-year Italian government bonds dropped 0.4 (!) percentage points to 3.89 per cent and those on their British counterparts of the same maturity declined 0.3 percentage points to exactly 3 per cent. For bond markets, this equals a landslide. US government bonds were less dramatic with a setback of around 0.1 percentage points.

Gold prices were supported on Wednesday evening by the depreciation of the US dollar after the Fed meeting. The euro against the US dollar was as strong as it had last been in April 2022, at 1.1033. Following the ECB meeting, however, the euro gave back the entirety of its gains. A number of currencies are now trading exactly as they had prior to the central bank meetings.

Weekly recap: gold in us dollars and euros

Gold prices were also shaken up. While the precious metal traded at US$ 1,925 per ounce on Friday morning last week, it slipped to the previous weekly low of 1,901 on Tuesday afternoon without any clear cause. Shortly after, it rebounded to 1,930 and jumped to a nine-month high of 1,959.75 after the Fed meeting. Personally, I am surprised that it retreated to 1,912 yesterday after the ECB meeting, even though capital market rates in Europe were so clearly declining. At 8:00 this morning, gold traded at 1,915 US$ per ounce.

The Xetra-Gold price is also slightly lower than at the end of the previous week. From 56.90 € per gram last week, it declined to 56.40 on Wednesday afternoon. Immediately following the ECB meeting, it traded at a weekly high of 57.25 but then fell back to 56.50. Xetra-Gold was expected to start trading at around 56.55. The US labour market report is on today’s schedule, and in the week to come, the markets should still be digesting this week’s central bank meetings. We thus may be in for a quieter week.

I wish all readers a restful weekend.