Gold gains strength on dovish Fed outlook

Gold prices edged higher on Monday, rising above $2,030 per ounce. If gold prices increase, resistance may be encountered near $2,048 per ounce, while if gold prices decline, further support may be found near $2,015 per ounce. 

Gold prices have been predominantly directed by the dollar’s movement, as the competing gold typically loses appeal as an investment when the dollar rises. The dollar was steady on Monday, with the dollar index hovering around the 102.5 level. US treasury yields gained strength, with the US 10-year bond yielding approximately 3.96%.     

Increases in central banks’ interest rates put pressure on gold prices since assets yielding interest become a more appealing investment compared to gold as interest rates rise. Expectations that the Fed may start cutting interest rates from the first quarter of 2024 are propping up gold prices.

The Fed kept interest rates unchanged at its December meeting, within a target range of 5.25% to 5.50%. The Fed’s forward guidance was more dovish than expected, hinting that the central bank is preparing to pivot to a less restrictive monetary policy. Market expectations of future rate cuts are boosting gold prices, as markets are currently pricing in a 25 bp rate cut in March with over 60% probability.

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Written by:
Myrsini Giannouli

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