On a record hunt

Last Friday, gold prices came close to their record high: at 2,786 US$ per ounce, they missed last October’s level of 2,790 US$ by a mere 4 US$ per ounce. They did, however, reach a record high in many currencies – in euros at 2,660 € per ounce. The precious metal benefited from the falling yields, especially of US bonds, over the course of the week, which simultaneously resulted in a weaker US dollar exchange rate.

This was due to the fact that in the first week of Trump’s presidency, no tariffs were imposed on foreign goods – as had been announced by him during the election campaign – which if imposed, could result in a trade war and stronger inflationary pressure in the US, provided that importers pass on their higher costs to buyers.

Looming threat of US tariffs

However, the financial markets may have been somewhat naive in this respect, which became clear on Monday night amid media reports of duties of 25 per cent which could be imposed on imports from Canada and Mexico from 1 February. In addition, Trump responded to a comment by his Treasury Secretary, Steven Mnuchin, that universal tariffs of 2.5 per cent on all imports had been brought into play, by saying that the tariffs would be ‘significantly higher’. We will know at least in part on Saturday, 1 February, whether he will make good on his tariff threats...

ECB: markets expect key interest rate cut

As a result of the above, the US dollar regained traction. This week’s central bank meetings are taking a back seat to US trade policy in terms of market relevance. As expected, the US Federal Reserve paused its interest rate cuts last night, and this pause might last for a while. On the other hand, the markets expect the ECB to lower its key interest rates by a further 0.25 percentage points today.

Gold remains in demand as a hedging instrument, including among speculatively oriented investors on the US futures exchanges. Their purchase positions rose to a twelve-week high last week.

Gold price: weekly roundup

Over the course of the week, gold remained roughly at the previous week’s level. Last Thursday morning, it traded at 2,755 US$ per ounce and climbed to the afore mentioned 2,786 US$ on Friday, sliding to a weekly low of 2,730.50 on Monday. It has since recovered to 2,765 and kicked off today’s trading at 2,761 US$ per ounce.

Xetra-Gold is also trading slightly above its previous week’s level. It rose from 85.15 € per gram last Thursday morning to a record high of 85.55 on Friday. On Monday, it dropped to the week’s low of 83.85 before recovering. This morning, Xetra-Gold is expected to start the trading day at around 85.25 € per gram.

Despite data on inflation in the eurozone and the US, scheduled for publication by the end of the week, US trade policy is likely to remain the markets’ short-term focus.

I wish all readers a happy and sunny weekend.