Gold prices were stable on Thursday, trading with low volatility, fluctuating around the $1,755 per ounce level. 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 extended losses on Thursday, on reduced rate hike expectations, touching its lowest level since August. The dollar index remained below the 106 level most of the day, reaching as low as 105.6. As Thursday was a Bank Holiday, US Treasury yields remained the same, with the US 10-year bond yielding 3.7%.
Gold has failed to take advantage of the dollar’s weakness this week. The dollar edged lower on Thursday, but gold remained flat, raising speculation that gold prices might have capped.
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.
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