Gold prices rally as the dollar plummets

Gold rallied on Wednesday climbing to $1,752 per ounce, as the dollar plummeted. If gold prices decline, support may be found near $1,666 per ounce and further down at $1,616 per ounce. Resistance may be found at $1,785 per ounce and higher up at around $1,802 per ounce.

The dollar collapsed on Wednesday on reduced rate hike expectations, boosting gold prices. The dollar index dropped from the 107 level in early trading, to nearly 106 later in the day. US Treasury yields also declined, with the US 10-year bond dropping from 3.8% to 3.7%.

The minutes of latest FOMC minutes were released on Wednesday and were more dovish than expected. The minutes revealed that many FOMC officials were in favor of slowing rate hikes soon. The dollar collapsed following the release of the FOMC meeting minutes, as future rate hike expectations were diminished.

Fed rhetoric is especially important this week as it may provide hints on the US central bank’s direction after recent soft inflation data. Fed rhetoric remained hawkish on Tuesday, although cautiously so, putting pressure on the dollar and boosting gold prices. 

The consensus between FOMC members seems to be that although inflation is cooling, further tightening will be required to bring inflation down consistently to the central bank’s 2% target. Market odds are currently between a 50-bps and a 25-bps interest rate increase in December. Rate hikes are expected to taper off in 2023 as the central bank moves into a stable interest rate. Gold prices are under pressure by the shift of most major Central Banks towards a tighter monetary policy to combat rising inflation rates. Assets yielding interest become a more appealing investment compared to gold as interest rates rise. 

US CPI and PPI inflation data in October were below expectations, indicating that inflation is cooling faster than expected. Annual CPI printed at 7.7%, compared to 8.2% in September and the 7.9% expected. Slowing price pressures may induce the Fed to pivot towards a more dovish policy reducing the aggressiveness of future rate hikes. Market expectations of future rate hikes were considerably trimmed after October’s inflation reports, causing the dollar to plummet. Slowing price pressures may induce the Fed to pivot towards a more dovish policy, reducing the aggressiveness of future rate hikes. 

TRADE GOLD

The content provided in this material and/or any other material that this content is referred to, whether it comes from a third party or not, is for information purposes only and shall not be considered as a recommendation and/or investment advice and/or investment research and/or suggestions for performing any actions with financial products or instruments, or to participate in any particular trading strategy and cannot guarantee any profits. Past performance does not constitute a reliable indicator of future results. TopFX does not represent that the material provided here is accurate, current, or complete and therefore shouldn't be relied upon as such. This material does not take into account the reader's financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of TopFX, no reproduction or redistribution of the information provided herein is permitted.

Written by:
Myrsini Giannouli

Share the article: