Gold market report: "Interest rate ante portas"

Blumenroth reports this week on how the gold price was unable to maintain the record highs it reached in mid-July, but is still benefiting from expectations of interest rate cuts by the US Federal Reserve.
 

2 August 2024. FRANKFURT (Xetra-Gold). Let's open the door right away: the gold price was unable to defend the record highs it reached in mid-July. However, compared to most industrial metals and silver, prices have held up much better over the past two weeks. The gold price has been supported by the continued robust market expectation of a first interest rate cut by the US Federal Reserve in September, which could be followed by two more this year if the interest rate futures markets are right.

The Fed's statement and the subsequent press conference with Governor Jerome Powell after yesterday's meeting further fueled these expectations - the monetary authorities kept the door wide open for a rate cut in September. As a result, yields on US government bonds fell to their lowest level since February of this year.

Gold prices in the wake of G10 monetary policy

The financial markets are also attributing the potential for further monetary policy activities to the ECB - the economic data point to a continued rather undynamic economic recovery, which would allow the ECB to also turn the interest rate screw further south. By and large, gold prices are therefore currently being supported by expectations regarding the monetary policy of the G10 central banks - or rather by the fact that government bond yields have fallen in the past two weeks as a result of these expectations.

Geopolitical situation boosts gold as a "safe haven"

In its ascribed function as a "safe haven", gold has also benefited since the beginning of this week from investors increasingly turning to the yellow metal due to the uncertain and unclear situation in the Middle East and concerns about potential further escalation. As a result, the price of gold was able to recapture the USD 2,400/ounce mark after temporarily falling below it.  

On Thursday morning last week, gold traded at USD 2,468 per ounce. This was followed by profit-taking, which caused the yellow metal to fall to around 2,400 US dollars/ounce by the end of the week. With the exception of a brief dip to USD 2,353/ounce last Thursday, the gold price traded more or less sideways, sometimes slightly above and sometimes slightly below the USD 2,400/ounce mark. The above-mentioned uncertainty about developments in the Middle East then led to a revival of interest in "safe havens" from yesterday. As a result, prices climbed to 2,451 US dollars/ounce. This morning at around 7 a.m., gold will start European trading at around 2,444 US dollars/ounce.

Xetra-Gold price slightly supported by weaker euro

The Xetra-Gold price also slipped in the meantime, although it was somewhat better supported by the moderately depreciating euro against the US dollar. During normal trading hours, it fell from 72.55 €/gram on Thursday morning last week to 69.95 €/gram on Thursday of last week. However, the recovery was then quite pronounced and led the price back up to 72.00 €/gram yesterday afternoon. This morning, Xetra-Gold is likely to start the day at around 72.60 €/gram.

Data-rich week

At the moment, the US presidential election has taken a back seat on the markets and central banks' monetary policy is dominating the headlines. Today at midday, the Bank of England could also make a turnaround on interest rates, and tomorrow the US labor market data will conclude a data-rich week: if they are significantly weaker or stronger than expected, these are likely to move prices on the financial markets.

From Michael Blumenroth, 2 August 2024, © Deutsche Börse