Impressive stability

There has been a marked trend reversal on the bond and currency markets since mid-September compared with the preceding weeks. The yields on 2 and 10-year US Treasuries have risen by around 0.5 percentage points within the space of some four weeks, which was followed by a sharp appreciation of the US dollar. It climbed to its highest level since the beginning of August, against both the euro and in the form of an index that measures the performance of the greenback against its trading partners.

The driving force behind the economy

This was due to the economic data from the US, which was often much better than expected, such as the labour market data discussed here last week. At the end of last week, the Atlanta regional office of the US Federal Reserve expected US GDP to rise by an annualised 3.2% in the third quarter, which would correspond to quarterly growth of approximately 0.8%. Given that the likelihood of a soft landing for the US economy may have increased– in other words no recession –  the US Fed may cut key rates by less than was recently expected. This caused yields to rise.

Gold prices unmoved

According to the textbooks, gold should now have encountered a headwind and retreated significantly, as a rise in yields of 0.5 percentage points and an appreciation of the US dollar by around 3% is quite something. However, what has been impressive in the past few days is the stability of the gold price, which in US dollars just fell short of a record high yesterday.

Last Thursday morning gold was still trading at USD 2,615 per ounce. After already trading at just under USD 2,660 per ounce at the end of the week, it moved more or less sideways on Monday and Tuesday of this week, sometimes above and sometimes below USD 2,650 per ounce. The precious metal then climbed to USD 2,685.35 per ounce yesterday, just a few cents short of its record high of 26 September. This attempt at a new all-time high was followed by profit-taking, causing a setback to USD 2,670 per ounce. Gold started European trading at around USD 2,679 US per ounce at around 7 a.m this morning, after trading at USD 2,685 per ounce in Asia.

The price of Xetra-Gold did in fact reach a new record high yesterday due to the weaker euro exchange rate. During normal trading hours, it climbed from EUR 76.85 per gram last Thursday morning to EUR 79.25 per gram yesterday afternoon, where it marked its new all-time high. It then retreated somewhat to EUR 78.90 per gram. However, if the situation at 7 a.m. remains unchanged today, Xetra-Gold will start the European trading day at around EUR 79.30 per gram – quite an increase on the previous week's level and a new all-time high.

US election dominates

A further potential interest rate cut by the ECB this afternoon is firmly priced in on the futures markets. The data on retail sales in the US is also likely to be of interest. The US elections and their potential outcomes are gradually dominating the financial markets. It is not even three weeks until 5 November.

I hope that October remains golden for all readers – both in weather terms and on the markets.