Consolidation following new record high

The gold price jumped to a new record high more rapidly than expected by most market participants earlier this week. Amid extreme illiquidity within the first hour of trading in the Asian time zone, it rose from 2,075 to 2,135 US$ per ounce, a new record high for the precious metal. European and US trading, on the other hand, saw massive profit taking over the course of the day, which in turn caused gold to drop by around 5 per cent from its high.

Markets in anticipation of interest rate turnaround
 

As to the reasons for this gold rally – the narrative among many market players is that the major central banks are likely to initiate the turnaround in interest rates sooner and more aggressively than previously expected. Due to persistently weak economic data on the interest rate futures markets, key interest rate cuts totalling 1.50 percentage points are now priced in for the ECB in the coming year, starting as early as March. The futures markets are pricing in interest rate cuts of 1.25 percentage points for the US Federal Reserve in 2024, also significantly higher than two to three weeks ago. It should therefore come as little surprise that, due to this reassessment of monetary policy, yields on eurozone and US government bonds dropped to levels last seen around three months ago. By and large, this development supported gold prices. 

However, as market players are now expecting the ECB to take a bolder stance than the Fed when it comes to interest rate cuts, the euro came under pressure against the US dollar. Gold therefore became more expensive for local investors, which might curb demand. Nevertheless, gold remains an attractive investment with further upward potential in 2024.

Due to my schedule this week, a look at the gold market as at Wednesday afternoon: 

Last Friday morning, gold traded at 1,994 US$ per ounce. Over the course of the previous week, it crept closer to its previous all-time high of 2,075, finally reaching it on Friday. The precious metal subsequently rose further to the aforementioned 2,135 but had cooled to 2,010 by Tuesday afternoon. On Wednesday afternoon, gold traded at 2,030 US$/per ounce. 

Xetra-Gold rises above 60 € per gram
 

Xetra-Gold also saw a noteworthy appreciation from 58.70 € per gram last Friday to 61.35 this Monday. After a setback to 59.60, it stood at 60.50 € per gram on Wednesday afternoon.

Before it’s time to gather under the Christmas tree, US labour market data is scheduled for publication this Friday, as well as a number of central bank meetings next week, which hold the potential for increased volatility on the markets. 

I wish all readers a relaxing weekend.