Meanwhile, the euro, which has been badly battered recently, has rebounded against the US dollar. Compared to the previous day, the exchange rate rose by 1.1% to $1.025. This affected the value of gold in euros.
European markets are in a wait-and-see position on the occasion of the upcoming ECB meeting. The interest rate decision will be announced on Thursday. The ECB is expected to announce an interest rate hike of 25 basis points. European bonds will also react to the result.
Yields in many cases have increased significantly compared to the previous week. For example, the yield on 10-year German government bonds was 1.25% on Tuesday (up from 1.12% the previous week). French and Spanish securities also recorded a similar increase compared to the previous week. Meanwhile, the yield in the US has again approached the 3% mark.
What is the impact of bond yields on gold? In general, when government bonds with a good credit rating carry higher interest rates, their attractiveness to stability-oriented institutional investors increases. In contrast, interest-free gold as a form of investment in calm times looks less profitable for such money managers. Automatic trading systems also respond to such changes.
However, bond yields are only one of many aspects that play a role in the development of gold demand and prices. When the capital markets are looking for a safe haven, the price of gold often rises while bond yields fall.
New events are expected this week for stocks, bonds and gold, potentially capable of changing prices. First of all, we are at the beginning of a new accounting season. In the coming weeks, the companies will present their financial results for the second quarter. Their numbers and forecasts will have an impact on economic and inflation expectations
In addition, there is another possible aggravating factor. The maintenance of the Nord Stream 1 pipeline is due to be completed on Thursday. If the gas pipeline is not returned to service immediately, this will further increase the uncertainty for business development in Germany.