Rate cuts imminent

Let’s get straight to the point. The price of gold has been unable to maintain its record high of mid-July, but prices have been considerably better in the past two weeks than for the majority of industrial metals and silver. The gold price was boosted by the widespread market expectation of an initial key rate cut by the Fed in September, potentially to be followed by two more this year if the predictions of the interest rate futures markets are correct.

The Federal Reserve’s statement and press conference with Chair Jerome Powell following yesterday’s meeting fuelled these expectations, with the door left wide open for an interest rate cut in September. This resulted in a drop in yields on US Treasuries to their lowest level since February this year.

Gold prices affected by G10 monetary policy

The financial markets also see potential for further monetary policy activities by the ECB – the economic data indicates that the economic recovery will continue to lack momentum, which would also allow the ECB to cut interest rates further. Gold prices are therefore largely buoyed by expectations surrounding the G10 monetary policy at present, i.e. by the fact that government bond yields have declined in the past two weeks as a result of these expectations.

Geopolitical situation boosts gold as “safe haven”

The status attributed to gold as a safe haven has been boosted since the beginning of the week by the increasing number of investors opting for the precious metal due to the unstable and uncertain situation in the Middle East and fears of further escalations. In light of this, the price of gold passed the USD 2,400 per ounce mark again after temporarily dipping below.  

Thursday morning of the week before last it was trading at USD 2,468 per ounce. This was followed by profit-taking, which caused the metal to fall to around USD 2,400 per ounce by the end of week. With the exception of the brief dip to USD 2,353 per ounce last Thursday, the gold price was trading slightly above or slightly below the USD 2,400 per ounce mark, in other words more or less sideways. The aforementioned uncertainty regarding developments in the Middle East revived interest in “safe havens” yesterday, causing prices to rise to USD 2,451 per ounce. Gold started European trading at around USD 2,444 per ounce at 7 a.m. this morning.

Price of Xetra-Gold bolstered slightly by weaker euro

The price of Xetra-Gold also suffered a temporary decline, although it received more of a boost from the slight depreciation in the euro versus the US dollar. During normal trading hours it fell from EUR 72.55 per gram on Thursday morning of the week before last to EUR 69.95 per gram on Thursday of last week. However, it also experienced a marked recovery, back up to EUR 72.00 yesterday afternoon. Xetra-Gold is likely to start this morning at around EUR 72.60 per gram.

A week full of data

The US presidential election has taken something of a back seat in the markets this week, with central banks’ monetary policy dominating the headlines. The Bank of England may well cut interest rates at noon today, and the US labour market data is due to be released tomorrow, closing a week full of data. The labour market data could cause a change in prices on the financial markets if it is significantly weaker or stronger than expected.

I wish all readers a pleasant summer weekend – hopefully without any storms – and a great summer holiday to those taking one.