Gold prices defy the dollar’s advance

Gold prices gained strength on Wednesday, rising from $2,605 to $2,624 per ounce. If gold prices rise, they may encounter resistance at $2,640 per ounce, while if gold prices decline, support may be encountered near $2,596 per ounce. 

Markets were quiet on New Year's Day with light trading volumes and very few fundamentals coming up this week. Gold prices rose on Wednesday even as the rivaling dollar gained strength.

Gold prices have been typically directed by the dollar’s movement, as the competing gold typically loses appeal as an investment when the dollar rises. The dollar strengthened on New Year’s Day, and the index rose from 108.1 to 108.5. US treasury yields remained steady, as Wednesday was a Bank Holiday, with the US 10-year bond yielding 4.57%.     

Gold prices are supported by increased Fed rate cut expectations. The US Federal Reserve cut interest rates by 25 basis points at its latest meeting to a target range of 4.25% to 4.50%. Fed Chair Jerome Powell delivered a hawkish speech after the meeting, emphasizing the need to be cautious about further rate cuts. Powell stated that the Fed’s approach will remain data-driven and hinted that the pace of future rate cuts will be slower. 

In addition, the Fed’s updated dot plot was more hawkish than anticipated, bringing down expectations of future rate cuts. The Fed’s latest dot plot indicated that only two rate cuts will take place in 2025, down from four projected in September. 

Safe-haven demand remains high, due to uncertainty in the Middle East, boosting gold prices. The civil war in Syria has been rekindled, further destabilizing the region. Tensions between Israel and Lebanon have cooled after the ceasefire deal, but hostilities between Israel and Hamas continue in the Gaza area. Meanwhile, the situation between Russia and Ukraine remains critical.

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Written by:
Myrsini Giannouli

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