Gold prices edge lower on stronger dollar

Gold prices have been in a downtrend but rallied after the release of the US inflation report on Tuesday, rising to $1,970 per ounce. Gold dipped again on Wednesday, dropping to $1,960 per ounce. If gold prices increase, resistance may be encountered near $2,000 per ounce, while if gold prices decline, support may be found near $1,900 per ounce. 

Gold prices have been predominantly directed by the dollar’s movement, as the competing gold typically loses appeal as an investment when the dollar rises. Gold prices surged on Tuesday after the release of the US inflation report drove the dollar down but edged lower on Wednesday as the dollar recovered. The dollar rallied on Wednesday after Tuesday’s selloff, and the dollar index rose to the 104.4 level. US treasury yields remained steady, with the US 10-year bond yielding approximately 4.44%. 

The Fed’s hawkish stance over the past year has been paying off and US price pressures are cooling. Inflation in the US eased more than expected in October, driving down rate hike expectations and putting pressure on the dollar. Headline inflation rose by 3.2% year-on-year in October from 3.7% in September, against expectations of a 3.3% print. Monthly CPI remained unchanged from the previous month in October, while markets were anticipating a 0.1% raise. Core CPI, which excludes food and energy, also surprised on the downside. Core CPI increased by 0.2% every month, compared to 0.3% anticipated.

US PPI data released on Wednesday confirmed that price pressures in the US are easing. Monthly PPI shrank by a whopping 0.5% in October, falling below expectations of a 0.1% growth. Core PPI, which excludes food and energy, remained stable, against expectations of a 0.2% growth.

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%. 

Fed Chair Jerome Powell has warned that policymakers are not confident that they have achieved a sufficiently restrictive stance to return inflation to the Fed’s 2.0% target. Powell also stressed that a sustainable drop in inflation is not guaranteed and hinted that stronger economic growth could warrant higher rates.

The crisis in Israel has given rise to a risk aversion sentiment, boosting demand for gold. Gold prices increase in times of war as more traders shy away from riskier assets and invest in assets that are more likely to preserve their value. The crisis in Israel, however, so far remains contained and there seems to be little risk of spreading in the region. Market attention is moving away from the war in Gaza and safe haven demand is dropping, causing gold prices to drop.

TRADE GOLD

The content provided in this material and/or any other material that this content is referred to, whether it comes from a third party or not, is for information purposes only and shall not be considered as a recommendation and/or investment advice and/or investment research and/or suggestions for performing any actions with financial products or instruments, or to participate in any particular trading strategy and cannot guarantee any profits. Past performance does not constitute a reliable indicator of future results. TopFX does not represent that the material provided here is accurate, current, or complete and therefore shouldn't be relied upon as such. This material does not take into account the reader's financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of TopFX, no reproduction or redistribution of the information provided herein is permitted.

Written by:
Myrsini Giannouli

Share the article: