Gold prices ease amid quiet trading

Although there are no more wild boars disguised as lions running through the forests of Berlin at the moment, the dreaded summer slump still has the markets in its clutches. Now nearing its end, this week has been marked by listless and sluggish market activity. Not even US consumer price data, which was slightly below expectations, was able to drag the markets out of their lethargy for more than half an hour. Both US Treasury yields and the US dollar weakened for a short time after the data was released, which in turn lent a tailwind to gold prices. However, it was “back to square one” half an hour later, with prices more or less back to where they were trading before the data was published.

As my last market commentary appeared in your mailboxes three weeks ago, here's a brief review. The central bank meetings in Washington and Frankfurt went almost exactly as market observers had expected. Both the US Fed and the ECB raised key interest rates by 0.25 percentage points at the end of July and announced that they would consider further interest rate hikes depending on forthcoming economic data. However, this also means that both central banks are likely to have already reached their interest rate peak, or are close to it, which may ordinarily have boosted gold prices.

But the euro came under pressure versus the US dollar as doubt mounted in the markets about the ECB's willingness to tighten interest rates given the weak economic data of recent weeks. The downgrading of US government debt by a rating agency also caused US Treasury yields to increase significantly, making them more attractive to investors and also resulting in a further appreciation of the US dollar.

This weighed on the gold price, as did the fact that some investors in the US sold their exchange-traded certificates backed by physical gold again in July. Long positions in gold were also liquidated on the US derivatives exchanges in the past two weeks and the funds likely parked in interest-bearing investments instead.

Whereas gold was still trading at USD 1,970 per ounce three Fridays ago, it rose to USD 1,982 per ounce following the Fed meeting at the end of July. However, it has been trending sideways since then – two steps down, one up, two down, etc. – landing at USD 1,911 per ounce last night. As the European trading day begins, it is currently trading at around USD 1,916 per ounce.

The price of Xetra-Gold fared somewhat better due to the moderate depreciation of the euro against the US dollar. Xetra-Gold was still trading at EUR 56.85 per gram during normal trading hours three Fridays ago. It rose to EUR 57.50 per gram by the end of July before also heading back down. It had fallen to EUR 55.85 per gram by noon yesterday. We expect Xetra-Gold to start trading at EUR 56.05 per gram this morning.

Gold prices are likely to continue to be influenced by the development of US Treasury yields in particular – if the latter rise further (as they did yesterday evening) – the gold price will come under pressure. However, if the markets conclude with full confidence that the Fed has indeed ended its cycle of interest rate hikes as US inflation continues to decline, this will open up upside potential for gold prices.

I wish all readers a pleasant weekend, and a great holiday to those taking one.