Gold prices soared on Thursday, climbing above the $1,729 per ounce resistance, touching $1,750 per ounce. 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 around $1,765 per ounce.
The dollar plummeted on Thursday, with the dollar index dropping below the 108 level as US inflation unexpectedly cooled. US Treasury yields also fell sharply, with the US 10-year bond yield dropping to 3.8%. The collapse of the US dollar and yields caused gold prices to skyrocket.
Monthly CPI and Core CPI, as well as Annual CPI data released on Thursday, fell short of expectations. US Monthly CPI in October rose by 0.4% against expectations of 0.6%. Annual CPI printed at 7.7% compared to 8.2% the previous month and the 7.9% expected. Core CPI, which excludes food and energy, rose only by 0.3% in October, versus 0.6% in September and the 0.5% expected. US inflation is cooling faster than expected, causing the dollar to collapse. US inflation will determine the aggressiveness of the US central bank’s future rate hikes and reduced price pressures may induce the Fed to pivot towards a more dovish policy.
The US mid-term Congressional elections have put pressure on the dollar, which has been declining since last Friday, 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 Friday, as markets absorb the US mid-term elections outcome and Thursday’s US inflation results.
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