Gold prices edge higher on dollar pullback

Gold prices edged higher in early trading on Tuesday, as the dollar weakened. Even though the dollar rallied later in the day, gold prices held on to the day’s gains, trading above $1,750 per ounce. If gold prices decline, support may be found near $1,666 per ounce and further down at $1,703 per ounce. Resistance may be found at $1,785 per ounce and higher up at around $1,802 per ounce.

The dollar slipped in early trading on Tuesday, with the dollar index touching the 106 level. The dollar gained strength later in the day though and the dollar index climbed to 106.7. US Treasury yields also gained strength late on Tuesday, with the US 10-year bond yielding over 3.7%.

The minutes of the latest Fed meeting released last week indicated no consensus among Fed members, leading to mixed signals for the markets. Fed rhetoric was hawkish this week though, boosting the dollar. Fed’s Williams stated that he sees higher interest rates into 2023 than anticipated and doesn’t expect rate cuts before 2024. FOMC member Bullard delivered an aggressively hawkish speech, emphasizing the need to raise interest rates to bring inflation down. Fed’s Mester also stressed that the US central bank is not close to a pause on tightening.

Market odds are currently between a 50-bps and a 25-bps interest rate increase in December. 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. 

Fed Chair Jerome Powell is also due to deliver a speech on Wednesday on the US economic outlook and inflation, which may affect the price of gold.

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Written by:
Myrsini Giannouli

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