Gold remained strong on Wednesday, fluctuating around the $1,710 per ounce level with low volatility. If gold prices decline, support may be found near $1,616 per ounce and further down at the 2020 low near $1,441 per ounce. Resistance may be found at around $1,729 per ounce.
Gold prices benefitted from the dollar’s decline on Tuesday, as US voters decided which party will control Congress. The dollar was steady on Wednesday, trading with low volatility, with the dollar index hovering around the 110 level during the day. US Treasury yields declined, with the US 10-year bond yield dropping to 4.1%
The US mid-term Congressional elections have put pressure on the dollar, which has been declining since last Friday. On Wednesday, the dollar remained in limbo, as the fate of the US Senate still hangs in the balance. Concerns that the Democratic party might lose control of Congress in the mid-term elections, leading to political instability in the US, have pushed the dollar down, boosting gold prices.
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. The US Federal Reserve voted to increase interest rates by 75 basis points at its monetary policy meeting last week. The Fed has so far increased interest rates by a total of 375 basis points this year, bringing its benchmark interest rate in a range of 3.75% to 4.0%.
Market expectations are currently in favor of a 50-bps rate hike in December and a 25-bps hike in January. Rate hikes are expected to taper off in 2023 as the central bank moves into a stable interest rate.
High volatility in gold prices is expected on Thursday, as markets absorb the US mid-term elections outcome. In addition, US Monthly CPI and Core CPI, as well as Annual CPI data are due on Thursday. These are expected to affect dollar and gold prices considerably, as US inflation data may determine the aggressiveness of the US central bank’s future rate hikes. US Monthly CPI for October is expected to be higher than September’s print, but Core CPI, which excludes food and energy, is expected to decline. Higher-than-expected inflation print on Thursday is likely to propel the USD upwards on increased rate hike expectations and may send gold prices plummeting.
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