Citius, altius, fortius

Faster, higher, stronger: today, we’re not just here to hone our Latin skills. The Olympic motto is well suited to characterise the current state of gold prices, which remained undeterred and bounced dynamically above the magical 2,500 US$ mark last Friday, closing out the week well above this figure.

US dollar index at annual low

There are probably various reasons for this development: Firstly, gold prices are benefiting from the fact that the financial markets continue to assume a turnaround in interest rates, i.e. interest rate cuts, by the US Federal Reserve from September – the next meeting on 18 September is drawing ever closer. The futures markets are also assuming that further interest rate hikes are in the cards for the subsequent meetings. This in turn provides the US dollar with a sustained headwind. The trade-weighted US dollar index hit a new annual low, and the US dollar also traded at its lowest level against the euro since last December. Falling interest rates and yields as well as a weaker US dollar usually provide a tailwind for the gold price.

Rising demand for gold ETCs/ETFs

Finally, a build-up in gold positions is likely to have occurred again, sold at the beginning of August in the wake of the market turbulence to cover losses on other positions. As the financial markets continue to calm down, it appears that gold is now once again sought out, and data also indicates that demand for gold ETCs/ETFs had increased noticeably in July.

Stable outlook

Overall, there is still a lot to be said for gold at the moment. Still, price setbacks can and probably will occur from time to time due to profit-taking. There is also a risk of potential headwinds for gold prices if expectations of robust interest rate cuts by the US Federal Reserve starting in September are not met – yields on short-dated US government bonds could then resurge, providing competition for gold, which does not pay interest. In the medium term, however, outlook for rising gold prices could remain favourable.

Gold cracks the 2,500 US$ per ounce mark

Last Thursday morning, gold traded at 2,453 US$ per ounce. On Friday, after a two per cent jump, it took the 2,500 US$ per ounce mark by storm. By the end of the week, it had already worked its way up to 2,509.50. Following a quiet Monday, the upward trend continued on Tuesday and a new record high was set at 2,531.75. Running somewhat out of steam, it retreated towards 2,500 and even briefly fell below this mark yesterday afternoon. This morning at around 7:00, gold will kick off European trading at around 2,502 US$ per ounce.

The Xetra-Gold price also rose week on week, although the noticeable appreciation of the euro against the US dollar prevented significant price gains. It initially rose from 71.65 € per gram last Thursday morning to 73.35 on Tuesday afternoon. The increasingly strong euro then capped prices. This morning, Xetra-Gold is likely to start the European trading day at around 72.20 € per gram.

US: Waiting for the interest rate turnaround

The markets are eagerly awaiting the Fed’s annual symposium in tranquil Jackson Hole, Wyoming. Fed Governor Jerome Powell will speak there tomorrow afternoon at 4:00. Market players will be listening closely for reliable indications of the Fed’s expected interest rate cut in September and possible comments on the general US economic situation. This could make for another exciting, volatile finale to the week.

I wish all readers a pleasant late summer weekend, which also marks the end of the school vacation in various federal states.