Like a herd of buffalo...

Fans of our local football club Frankfurt Eintracht will remember the glorious days of the so-called buffalo herd in our forward line, when three top attackers on the pitch would present the opposing defence with unsolvable challenges. That’s the image that came to my mind this week, as gold prices surged relentlessly from record high to record high. Like a buffalo herd, they were not to be stopped by anything or anyone.

US dollar index at all-year low

This was due to several reasons: last week’s unexpectedly significant US interest rate cut has had a lasting effect. Many market players are expecting a further step of similar magnitude on 7 November, especially since the US consumer confidence index dropped more sharply than expected in September. As a result, yields on short-dated US Treasuries remain under pressure, while the US dollar index dropped to its lowest level since the beginning of the year. Against the euro, it weakened to a 14-month low yesterday.

Chinese central bank: interest rate cut to support economy

Unexpected support for the gold price also came from other parts. The Chinese central bank lowered key interest rates and rates for mortgage loans is week and launched various further stimuli to help the Chinese economy and specifically the real estate sector out of the current slump. This sparked strong demand for commodities in general, and especially industrial metals, with precious metals joining the rally.

Gold regarded as attractive investment alternative

In addition, yields on ten-year Chinese government bonds dropped to a record low of 2.00 per cent, while two-year bonds yielded less than 1.35 per cent. The low level of yields alongside the ongoing crisis in the property market are likely to add sparkle to gold as an investment alternative in China. The same goes for the appreciation of the renminbi, which reached its highest level against the US dollar in Hong Kong trading since May 2023. Here, investors are betting on an economic recovery in China and the resulting inflows from abroad, which should cause the renminbi to appreciate.

Gold up 100 US$ per ounce in five days

We are currently in an overall friendly environment for gold, as reflected by the prices. Last Thursday morning, the precious metal traded at 2,568 US$ per ounce. It has since continued to rise daily, hitting one record high after another, most recently at 2,670.50 last night – an increase of around 100 US$ per ounce within five days. Over the course of the day, profit taking caused a setback to 2,650. This morning, at around 7:00, gold kicked off European trading at around 2,661 US$ per ounce.

Xetra-Gold has also risen to a new record high from 74.25 € per gram last Thursday morning to 76.65 yesterday afternoon. This morning, Xetra-Gold might start European trading even higher (as of 7:00) at around 76.75 € per gram.

In the coming days, month-end and quarter-end dispositions could move stock market prices. Next week, the focus will presumably be on various US data – including the labour market report on Friday, which follows a German public holiday, Unity Day.

Here’s to a hopefully golden October.