The gold price, calculated in euros, reached a new all-time high on Monday. The real crisis in Europe is yet to come. There are many reasons why the conditions for further gold prices are currently ideal.
Gold price in euros at all-time high
The gold price, calculated in euros, reached a new all-time high on the basis of US futures trading yesterday. The most traded contract on COMEX (December 2019) closed at $ 1,537.20. That was 1,385.49 euros. The previous record high comes from 28 September 2012 with 1,381.26 euros. The intraday high was on October 1, 2012 at € 1,392.63. In the wake of the recent rally, US futures were up to € 1,410.55 in yesterday’s daily sales.
How does it go from here? Let’s first look at the technical situation. The euro-gold chart moved into a steep uptrend at the beginning of June. The price was already 7.5 percent above the 50-day average. With an RSI of 76 (Relative Strength Index), the situation is already clearly overbought. In the past, however, RSI values of just under 90 have already been experienced here, as in December 2009.
From a purely fundamental point of view nothing speaks in the medium term against a continuation of the price rise. The highs in 2012 came in the wake of an acute crisis. Draghi’s statement at the time that everything would be done to preserve the euro, and subsequent measures (bond purchases), later eased the financial markets. A real crisis has not yet materialized in the euro area. However, the current government crisis in Italy, the ongoing sovereign debt problem and the legacies in the European banking sector are reminiscent of days gone by. And there are increasing concerns of a strong economic slump.
ECB under pressure
However, the European Central Bank has already largely exhausted its usual monetary policy instruments today. The interest rate is already at zero percent. Three large (generous) refinancing rounds have already been launched for European banks (TLTRO) and under the currently suspended buy-out programs (PSPP and CSPP), the ECB has already invested public securities and corporate bonds totaling more than € 2 trillion (2 , 26 billion euros as at 26.08.19). However, income from expiring bonds will continue to be reinvested. European commercial banks are already paying a fine of 0.4 percent for short-term deposits with the European Central Bank. And yet these “fear costs” (current accounts, deposit facility) were still 1.8 trillion euros last. Actually, the punitive interest rate should stimulate lending (and inflation).
Euro under pressure
It is also true that the interest rate differential between the euro area and the US remains high and weighs on the euro. Despite the recent interest rate cut, the federal funds rate remains at a comparatively high 2.25 percent (upper limit). And at the same time, we continue to see clearly negative real interest rates in the euro area. At the institutional level (interbank rates EONIA at the beginning of August at 0.36%, inflation at 1%), the most recent result was -1.36%.