Weekly market report by gold market expert Michael Blumenroth

Market report 27.05.2016

Speculation on Fed interest rate policy continues to weigh down gold price

The scenario described in last Friday’s commentary has remained largely unchanged. The week now ending was again dominated by a number of speeches by Federal Reserve Board members of the Open Market Committee, the decision makers of monetary policy. Most speakers – from a gender political view quite askew as all of them were male – emphasised their expectations for two to three key interest rate increases in the course of 2016, or at least thought them possible. In addition, they are in agreement that a next interest rate hike might be on the agenda as early as in June or July.

As a result, the US dollar was able to rise against a number of currencies in the course of the week, especially against the Australian dollar and South African rand, the currencies of the major gold producing countries. The euro also decreased in value against the US dollar and was set back to a three-month low.

As gold is in direct competition with interest-bearing investments, the slight upturn of US returns did not benefit the most precious of metals. While it traded at 1,255 US$/ounce exactly a week ago, holding its ground until Tuesday afternoon, it succumbed to the above mentioned headwind and fell to a seven-week low at 1,218 US$/ounce on Wednesday afternoon. From there, it recovered slightly to 1,230 US$/ounce yesterday morning. Last night however, it fell below the significant chart mark of 1,218 US$/ounce and tumbled to 1,212 US$/ounce after stop-loss sales, before recovering slightly to 1,220 US$/ounce. 

For Xetra-Gold investors, the gold price decline was somewhat softened by the equally weakened euro, it did, however, also depreciate in euro. From 36 €/gram last Friday it fell to a weekly low calculated outside trading hours of 34,80 €/gram last night before rebounding to its current price of approximately 35,05 €/gram.

All eyes are now on Janet Yellen and her two upcoming speeches, the first today at 4:30 p.m., but more decisively on 6 June. Among market observers, a sense of queasiness is setting in. Stocks gained significant value this week and a carefree attitude seems to be prevailing among investors. Whether this is justified (after all, the Brexit vote is imminent and the Chinese economic situation might come back into the spotlight)? We will see.

Good luck in dodging the puddles on this blustery spring weekend!

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