Under the spell of the central banks

This week, the financial markets’ major focus was on the central bank meetings. With the exception of the Norwegian central bank, the financial markets’ prediction that there would be no further interest rate changes was proven true. Key interest rates remained unchanged in Switzerland and the UK as well as by the ECB and the Fed – but authorities did differ in their messages. While the ECB and the Bank of England communicated that key interest rates would remain at a high level for a while longer and monetary policy would therefore stay restrictive, the Fed gently hinted that a turnaround in interest rates is probably not too far away.

Falling yields, weak US dollar

The market reactions were impressive. Yields on two-year US Treasury bonds dropped by around 0.30 percentage points. Ten-year Treasuries, still yielding above 5 per cent at the end of October, were yielding 3.89 per cent yesterday afternoon. The fall in Treasury yields acted as a headwind for the US dollar, which slackened significantly. Following yesterday’s ECB meeting, the euro rebounded above the 1.10 €/US$ mark. Noticeably decreasing yields and a weaker US dollar created a favourable environment for gold, and the precious metal duly recovered to its previous weekly loss, at least in US dollars:

Gold surpasses 2,000 US$/ounce

On Wednesday last week, gold traded at 2,030 US$/ounce in the afternoon. In the run-up to the Fed meeting, there was further profit-taking as many market players were expecting the US central bank to contain or dampen market expectations regarding US interest rate cuts. Gold weakened to 1,973 US$/ounce on Wednesday morning, but sparked by the Fed meeting, prices climbed to 2,048. This morning, gold started the trading day at 2,037 US$/ounce.

Xetra-Gold was slowed somewhat by the appreciation of the euro against the US dollar, rising from 60.50 €/gram on Wednesday last week to a weekly high of 60.75 on Thursday. After a setback to 58.95 on Wednesday morning, it recovered to 60.15 yesterday morning and 59.65 today.

In the upcoming trading week, the Bank of Japan will decide on interest rates. Otherwise, year-end dispositions are likely to have the greatest impact on trading.

I wish all readers a relaxing third Advent weekend.