Gold market report: "Impressive stability"

Michael Blumenroth reports that US bond yields have risen sharply against the US dollar to their highest level since August, fuelled by unexpectedly positive economic data. Despite these developments, gold is showing surprising stability at almost record highs. The upcoming US elections and today's retail sales data are the focus of the markets.

18 October. 2024 FRANKFURT (Xetra-Gold). Since mid-September, the bond and currency markets have seen quite a strong reversal compared to the trends of the previous weeks. Within around four weeks, yields on two-year and ten-year US government bonds rose by around 0.5 percentage points each. The US dollar also appreciated strongly in the wake of the rise in yields. It climbed to its highest level since the beginning of August. This development was evident both against the euro and in the form of an index that measures the performance of the greenback against its trading partners.

Driving force: the economy

This development was driven by economic data from the US, which often turned out to be much better than expected, such as the labor market data discussed here last week. At the end of last week, the Fed's regional office in Atlanta expected gross domestic product in the US to rise by an annualized 3.2% in the third quarter, which would correspond to quarterly growth of around 0.8%. As the probability of a “soft landing” for the US economy, i.e. the absence of a recession, may have increased, the US Federal Reserve may lower key interest rates to a lesser extent than recently expected. This caused yields to rise.

Gold prices unimpressed

In textbook fashion, gold should now have felt the headwind and retreated significantly, as a 0.5 percentage point rise in yields and a rise in the US dollar of around three percent are quite something. However, the impressive thing in recent days has been the stability of gold prices, which only missed a record high in US dollars by a hair's breadth yesterday.

On Thursday morning last week, gold was still trading at 2,615 US dollars/ounce. After trading at just under 2,660 US dollars/ounce at the end of the week, it moved more or less sideways on Monday and Tuesday of this week, sometimes above and sometimes below 2,650 US dollars/ounce. Yesterday, the precious metal then rose to 2,685.35 US dollars/ounce, missing the record high of September 26 by just a few cents. This attempt at a new all-time high was followed by profit-taking and thus a setback to 2,670 US dollars/ounce. This morning, gold will start European trading at around USD 2,679 per ounce at around 7 a.m., after another USD 2,685 per ounce was recorded in Asia.

The Xetra-Gold price actually reached a new record high yesterday due to the weaker euro. During normal trading hours, it climbed from 76.85 €/gram on Thursday morning last week to 79.25 €/gram yesterday afternoon, marking the new all-time high right there. Afterwards, it also fell slightly to 78.90 €/gram. However, Xetra-Gold is likely to start the European trading day at around 79.30 €/gram today, if the level at 7 a.m. does not change - i.e. quite a bit above the previous week's level and at a new all-time high.

Main topic: US election

A possible further interest rate cut by the ECB this afternoon is firmly priced in on the futures markets. Retail sales data in the USA is also likely to attract interest. Overall, the elections in the USA and their potential results are increasingly becoming the dominant topic on the financial markets. There are just under three weeks to go until November 5.

I wish all readers that the golden October continues, both in terms of the weather and on the markets.

By Michael Blumenroth, 18 October, 2024, © Deutsche Börse