Gold edged higher in early trading on Wednesday, testing the key $2,000 per ounce level resistance. Gold’s rally was halted later in the day though, and gold prices dropped below $1990 per ounce. If gold prices increase, further resistance may be encountered near $2,050 per ounce, while if gold prices decline, support may be found near $1,955 per ounce.
The dollar’s movement has predominantly directed gold prices, as the competing gold typically loses appeal as an investment when the dollar rises. The dollar gained strength on Wednesday and the dollar index climbed above the 104.0 level. US treasury yields edged higher on Wednesday, with the US 10-year bond yielding approximately 4.41%.
Inflation in the US eased more than expected in October, driving down rate hike expectations and boosting gold prices. Headline inflation rose by 3.2% year-on-year in October from 3.7% in September, against expectations of a 3.3% print.
Gold prices rallied last week on expectations that the Fed’s tightening cycle is coming to an end, signaling the start of a Fed pivot. 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. At the latest Fed meeting, FOMC members voted to keep interest rates unchanged at a 22-year high within a target range of 5.25% to 5.50%. The Fed has made it clear that its approach from now on will be data-driven and Tuesday’s inflation data have brought odds of a rate hike in December to zero. Market odds of another rate hike in December have dropped to zero, while markets are pricing in rate cuts as early as May.
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