“Gold rush”

To be honest: writing last week’s market commentary, I would never have dared to predict the US consumer price inflation data for June to result in the strong market movement that actually occurred. The data came in noticeably below expectations, with consumer prices down month on month. More importantly, the core rate adjusted for energy and food prices had also dropped, in contrast to market consensus. And as the icing on the cake, the appreciation of some components of the US producer price index published on Friday also undercut expectations, more specifically those included in the core PCE rate, the key measure for the US Federal Reserve.

Fed hints at possibility of imminent interest rate turnaround

As already indicated above, market reactions were impressive. Immediately following the publication of the data, the interest rate futures markets completely priced in a rate cut by the Fed in September, as well as one or two more by the end of the year. Keep in mind that on 1 July, the Fed itself had only assumed a single rate cut for 2024. Yields on short-dated US Treasury bonds plummeted. The US dollar also faced strong headwinds, at least against the euro, pound sterling and the yen.

It was the initial spark for gold prices to break through last week’s trading range. It is precisely this prospect of an interest rate turnaround in the US that the yellow metal may have been lacking.

Gold in US dollars and euros on record course

Last Thursday morning, gold traded at 2,382 US$ per ounce. Immediately after the publication of the consumer price data, the precious metal jumped above 2,400, stopping at 2,424. Apart from a brief setback on Friday afternoon, prices then remained above the mark of 2,400 and elegantly surpassed the previous record high from May at around 2,450 on Tuesday afternoon. Gold prices climbed further to 2,483.50 yesterday afternoon before the first profit-taking apparently set in. At around 7 a.m. this morning, gold will start European trading at around 2,468 US$ per ounce.

The Xetra-Gold price also reached almost unprecedented heights. Only on April 12 had it traded slightly higher, at around 73.45 € per gram, but the euro has since appreciated against the US dollar. From 70.70 on Thursday morning last week, it climbed to around 73.00 yesterday morning. Following some profit taking, Xetra-Gold is likely to kick off today’s trading at around 72.55  € per gram.

The development of various other currencies shows FX markets are currently focusing strongly on the central banks’ monetary policy, which ultimately also has an impact on commodity prices. Investors and market participants are also increasingly focusing on the US presidential election.

I wish all readers happy and sunny summer weekend. Note that our next commentary is coming up the week after next.