Gold rises to multi-month highs

01.02.2019 - Market report

created by Michael Blumenroth

Weekly market report

Gold prices have again continued to rise throughout the week. Generally speaking, this week’s market environment has been favourable for the precious metal. Amongst other things, it benefited from the Fed meeting. At the press conference that followed, Fed Chairman Jerome Powell took a 'patient' (he used the word several times) and relaxed stance regarding US interest rate hikes.

US Treasuries and dollar weaken

Immediately after the Fed meeting, US traders priced out any prospect of further interest rate increases from the Fed for 2019, but did price in a slight probability of interest rate cuts. This caused yields (market interest rates) on US government bonds to fall relatively sharply, which usually boosts the price of gold. The US dollar, in turn, also receded, sharply in some cases, particularly against the currencies of commodity producing countries. This was of course also beneficial to the development of the gold price.

WGC reports growing demand for gold

Meanwhile, the World Gold Council (WGC) reported Thursday that global demand for gold had risen by 4 per cent in 2018 (to 4,345 tons), the highest level in five years. Above all, this was caused by an extreme and surprisingly strong demand on the part of the central banks. According to the WGC, central banks bought 652 tons of gold, a 74 per cent year-on-year rise, and the largest amount since the end of the Bretton Woods system in the early 1970s. Once again, the largest gold buyer was the Russian central bank.

Gold in US dollar sees sound weekly profit

Gold traded at 1,285 $/ounce in US dollars on Friday morning last week. By the evening, the gold price had boldly crossed the 1,300 $/ounce mark, which came as a surprise to a number of market participants, and it continued its upward course to 1,305 $/ounce. On Monday, the precious metal only briefly dipped past the 1,300 $/ounce mark, before climbing, dollar by dollar, until the Fed meeting propelled it to 1,326 $/ounce, its highest level since May 2018. With the dollar recovering somewhat, gold then came under some pressure. It currently (Friday morning) trades at 1,318.50 $/ounce, which of course, is still an excellent weekly gain.

Xetra-Gold at highest level since April 2017

Following the Fed meeting, the euro traded above the 1.15 mark against the US dollar, but on Thursday receded almost to its starting point. Xetra-Gold therefore trades at a level we last saw in April 2017. After some ups and downs, it climbed from 36.50 €/gram last Friday morning to 37.10 €/gram yesterday afternoon. Since then, it has receded only slightly and traded at 37.05 €/gram at the time these lines were written.

What to look out for next week 

The gold price will certainly continue to be influenced by news on central banks’ interest rate policies. Market observers will also continue to watch the US-China trade conflict and US labour market data, set to be published this afternoon, may give an indication on US wage inflation, which could sooner or later cause the Fed to act. Due to the Chinese New Year celebrations, physical demand from that region may come to a standstill in the coming week.

I wish all readers a pleasant weekend.  

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