Historic market movements

Although I’m an old hand after years of observing the markets, I will say: the extent of the market movements of the past few days is something you really don’t see every day.

This past Tuesday’s events were particularly noteworthy. First, the US president actually put the announced tariffs on Canada, Mexico and China into effect, causing a strong rush towards safe havens across markets, with the Swiss franc, yen and gold particularly in demand. In the evening, white smoke rose from the negotiating table in Berlin: the CDU and SPD, the new federal government’s possible coalition partners, declared their intention to make billions in loans available for defense and infrastructure. A special fund for infrastructure repair of €500 billion and an exception of certain defense expenditures from the debt brake are being discussed.

Euro and government bonds on the rise

This resulted in very strong market reactions yesterday (Wednesday). The euro rose to a four-month high against the US dollar, almost making up for its losses since the US presidential election. The yields on German government bonds and other European government bonds also rose significantly. The 30-basis-point rise in yields on 10-year Bunds was the largest daily increase since the early 1990s.

Rebounding gold prices

What does this mean for gold? At the end of last week, it came under pressure as profit-taking occurred ahead of the end of the month and, apparently, some long positions in the futures exchanges in the US were closed out. With the looming US tariffs and the turbulent price changes in the stock markets, as well as the friction between the US and Ukraine over the way to ceasefire negotiations, gold was in demand again as a safe haven. Yesterday, the precious metal was somewhat torn between the strong rise in European bond yields, which tends to have a negative impact on the gold price, and the increasing depreciation pressure on the US dollar, which tends to support it. 

However, gold did gain ground since last Thursday. From 2,895 US$ per ounce at 7 a.m. it had dropped to 2,860 US$ per ounce by the end of the week, with a low of 2,833. From the start of trading on Monday, however, it rose steadily to 2,927 on Tuesday. Yesterday afternoon, it slipped back to 2,895 but recovered to 2,925 within hours. This morning, the precious metal started the new trading day at 2,920 US$ per ounce.

Xetra-Gold temporarily above 89.00 € per gram

The Xetra-Gold price came under some pressure due to the strong rise of the euro, rising from 89.00 € per gram on Thursday morning, after a few setbacks, to a weekly high of 89.35 on Tuesday afternoon. Following the news from Berlin regarding the “special fund” and the subsequent rally in the euro exchange rate, it fell back to 86.90 € per gram yesterday afternoon, a level from which the Xetra-Gold price is also likely to kick off today’s trading.

This afternoon, the ECB is expected to cut key interest rates again but may express caution regarding subsequent interest rate hikes. Tomorrow (Friday), US labour market data is scheduled for release. By and large, however, geopolitical and fiscal policy decisions will continue to chart the course.

I wish all our readers a relaxing spring weekend after this turbulent week.