Gold remains in demand

This week, gold demand has remained high, with the tense situation in the Middle East causing gold prices to rise by almost six per cent since last Friday morning. The gold price rally is unusual in that it occurred despite US Treasuries’ yields rising significantly over the course of the week.

US reports strong retail sales

Two-year US Treasury bonds yielded 5.26 per cent at one point, their highest level since June 2007, as did their 10-year counterparts, whose yields rose as high as 4.99 per cent. This apparently came as a surprise to many market participants. Yields had fallen sharply last week due to safe haven purchases of US Treasuries. The jump in US yields was triggered, amongst others, by solid US retail sales data; US consumers are not letting inflation and high credit interest rates spoil their appetite for shopping. The market narrative is that a persistently strong US economy should entail a longer period of high interest rates.

Week-on-week gains for US dollar gold

Another, somewhat counterintuitive, development of the week was the fact that while the safe havens gold and Swiss franc, which had risen to a record high against the euro, climbed noticeably, the US dollar barely made any gains this week – despite higher yields.

Last Friday morning, gold still traded at 1,876 US$ per ounce (and at an even lower 1,824 a fortnight ago). By the close of trading, it had already recovered to 1,932, as many investors took gold into their portfolios before the weekend to hedge against price setbacks on other markets. Gold prices then tended to rise further day by day, reaching 1,982 US$ per ounce last night. This morning, gold started trading at around 1,980.

Xetra-Gold kicks off trading above 60€ per gram

The Xetra-Gold price also climbed noticeably. During regular trading last Friday, Xetra-Gold traded at 57.30 € per gram but had worked its way up to 59.75 by Wednesday afternoon before the recovery of the euro had a slight short-term dampening effect. Xetra-Gold was expected to start trading this morning somewhat firmer, at around 60.15 € per gram.

Due to the tense geopolitical situation, the precious metal should remain in demand as a safe haven. The question remains, however, whether most investors are now already invested, slowing down the rally’s momentum due to a lack of follow-up buying.

I wish all readers a calm weekend.