Gold Prices rose this week to reach $2,341.19/ ounce

Lebanese Forex Market

Lebanese monetary authorities announced the decision of unifying the LBP exchange rate against USD at 89,500 starting Feb 16^th, 2024. This rate represents the BDL’s electronic platform rate used for calculating commercial banks and BDL’s balance sheet, though no decision has been reached on the “banking exchange rate” yet.

The Lebanese exchange rate has maintained a relatively stable exchange rate of approximately 89,700 USD/LBP in the parallel market by May 31^st, 2024. It is crucial to recognize that this stability is not backed by robust fundamentals, but by the cautious and tight monetary policies by BDL. Given the ongoing financial crisis and the absence of a recovery plan, Lebanon’s future remains uncertain and unstable.

As for the Euro/LBP currency pair, the Euro depreciated against the LBP with the currency pair going from last week €/LBP 97,062.75 to €/LBP 96,856.9 by May 31^st, 2024. The Nominal Effective Exchange Rate (NEER) of the Lebanese pound slightly increased by 0.12% standing at 227.43 points on May 31^st, 2024.

International Forex Market

The USD Index (DXY) slightly rose by 0.16% to stand at 104.89 on May 31st, 2024. The US economy grew at a slower pace in the first quarter than initially reported, primarily reflecting softer consumer spending on goods. Indeed, gross domestic product (GDP) rose by 1.3% annualized in the first three months of the year, below the previous estimate of 1.6%, according to the Bureau of Economic Analysis figures.

The Euro slightly depreciated against the dollar by 0.24% over the course of the week and reached EUR/USD 1.0821 by May 31^st, 2024. French inflation quickened for the first time this year as Consumer prices in the euro area’s second largest economy rose by 2.7% from a year ago in May after holding steady at 2.4% in the previous month. The reading slightly exceeded the 2.6% median estimate of economists in a Bloomberg survey. After Germany and Spain both reported similar upticks, analysts forecast that data for the 20-nation euro zone will come to 2.5%, up from 2.4% in the previous month. Nonetheless, although new inflation data is moving away from the ECB’s 2% target, disinflation is expected to continue later this year and officials are likely to proceed with the cut in their deposit rate on June 6.

Similarly, the British Pound slightly depreciated against the dollar by 0.25% over the course of the week and reached GBP/USD 1.2705 by May 31^st, 2024. Although, recent data shows the annual inflation rate was 2.3% in April 2024, down from 3.2% in March. It marks its lowest level in nearly three years, and Prime Minister Rishi Sunak says it shows that “brighter days are ahead”.

For other currencies in Europe, the Swiss Franc appreciated by 1.05% by the end of this week to stand at USD/CHF 0.9051 on Friday May 31^st, 2024. Elsewhere, the Japanese Yen slightly depreciated by 0.08% to reach USD/JPY 157.12 and the Chinese Yuan remained almost stable at USD/CNY 7.2437by May 31^st, 2024.

Furthermore, the Australian dollar appreciated over the course of the week to stand at AUD/USD 0.6632, while the Canadian dollar depreciated by 0.03% to reach USD/CAD 1.3669 on Friday May 24^th, 2024.

Commodities

Gold prices rose by 0.32% over the course of the week to reach $2,341.19 / ounce on Friday May 31^st, 2024. Gold prices have risen significantly in recent months, even though real interest rates have fluctuated. This increase can be attributed to several interrelated factors.

Firstly, there is growing economic distrust in China. Chinese citizens have become increasingly wary of their own currency due to the country’s economic instability. China’s rapid economic growth, which relied heavily on accumulating debt for capacity expansion and property investment, has led to overcapacity and a property bubble. With an unreliable social safety net, Chinese citizens save about 40% of their salary, historically investing these savings in domestic properties and shares. However, confidence in these traditional investments has diminished. Additionally, strict capital controls imposed by Beijing limit the ability of Chinese citizens to invest abroad, making gold an attractive alternative. As a result, demand for gold in China has surged.

Moreover, geopolitical tensions also play a significant role in the rising gold prices. Ongoing conflicts in Ukraine and the Middle East have heightened tensions between the West, Russia, and Iran. These geopolitical conflicts contribute to global instability, increasing the appeal of gold as a safe haven.

Lastly, the declining global influence of the United States is a crucial factor. Historically, the US has acted as the world’s primary superpower, promoting globalization, free trade, and economic stability. However, recent political developments and fiscal challenges have weakened this role. This shift creates a more unpredictable geopolitical environment, heightening the likelihood of intensified conflicts and prompting major reserve fund managers to invest more in gold, especially outside Western countries.

Crude oil prices remained almost stable at $77.78/ barrel by the end of the week although the U.S. government reported weak fuel demand in the country and a surprise jump in gasoline and distillate fuel stockpiles.

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