Headwinds from the US and China...

In recent days, gold has had to withstand a fair number of adversities. The US labour market report for September turned out better than expected in all respects with roughly 100,000 more jobs created than had been generally expected. The unemployment rate dropped unexpectedly, and average wages rose more sharply than anticipated. In an immediate reaction, the interest rate futures markets reduced their expectations of Fed key interest rate cuts for the last two meetings of the year from 0.75 to 0.50 percentage points. Yields on two-year US Treasuries rose by a whopping 0.25 percentage points, and yields on long-dated bonds were also up, while the US dollar appreciated noticeably.

Chinese economy weakens

In this environment, the gold price remained remarkably unfazed with minimal losses until Tuesday. After the Chinese government and central bank had decided on several stimuli for the rather meek Chinese economy in the run-up to the country’s holiday week, analysts expected further announcements of massive economic aid from the Chinese supreme economic planning authority as part of the press conference announced on Tuesday morning. Concrete measures, were, however, not mentioned and any expectations of an economic turnaround in China subsequently diminished. Chinese stock indices tumbled, the national currency renminbi came under pressure, as did commodities. The latter had previously been fanned by hopes that demand from China would increase significantly.

The prices of oil, industrial metals, silver and other commodities all suffered noticeably on Tuesday, often dropping by more than three per cent. Gold prices did not entirely withstand the downward pressure.

Last Wednesday morning, the precious metal traded at 2,650 US$ per ounce. It rose to 2,670 at its weekly high on Friday, before ending the weekend at 2,653. This was also exactly where gold traded on Tuesday before falling to 2,605 intraday. It has since not been able to recover sustainably, topping out at 2,622 yesterday. This morning at around 8:00, gold started European trading at around 2,615 US$ per ounce.

Xetra-Gold slightly below previous week’s level

For Xetra-Gold, the setback was somewhat mitigated by the weakening euro yesterday. It initially climbed from 77.00 € per gram last Wednesday morning to a record high of 78.25 on Friday afternoon. After that, it also fell back to 76.45 on Tuesday. After the upward movement came to an end yesterday at 76.95, Xetra-Gold was expected to start European trading today (as of 8:00) at around 76.85 € per gram – only moderately below last week’s level.

Today, the markets are looking to the US for September consumer price inflation data, which could have an impact on the market. More generally, the markets will continue to focus strongly on geopolitical developments (especially in the Middle East) and central bank monetary policy.

I wish all readers a sunny weekend after what has been a rainy week here in Frankfurt.