Gold prices remain high as US yields edge lower

Gold prices remained high on Wednesday, benefitting from a weaker dollar and US yields. Gold traded with low volatility on Wednesday, hovering around the $1,780 per ounce level. 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 $1,802 per ounce.

The collapse of the US dollar and yields caused gold prices to skyrocket last week. The USD continued to decline this week, buoying gold prices The dollar remained steady on Wednesday, trading with low volatility. The dollar price remained weak, with the dollar index hovering between 106.0 and 106.6 throughout the day, as the US Senate still hangs in the balance. US Treasury yields declined, with the US 10-year bond yielding below 3.7% by the end of the day. Diminishing Fed rate hike expectations are putting pressure on US bond yields and dollar price, which had been trading in the overbought territory over the past few months.

US Monthly CPI in October rose by only 0.4% against predictions of 0.6%. Annual CPI printed at 7.7%, compared to 8.2% the previous month and the 7.9% expected. Slowing price pressures may induce the Fed to pivot towards a more dovish policy reducing the aggressiveness of future rate hikes.

On Tuesday, PPI data confirmed that US inflation is cooling faster than expected, causing the dollar to plummet. Monthly PPI for October printed at 0.2%, against expectations of 0.4%. Monthly Core PPI, which excludes food and energy, was stagnant, versus a 0.3% rise predicted and a 0.2% rise in September. 

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 latest monetary policy meeting. 

Fed rhetoric is especially important this week as it may provide hints on the US central bank’s direction after recent soft inflation data. Fed rhetoric remained hawkish this week, although cautiously so. The consensus between FOMC members seems to be that although inflation is cooling, further tightening will be required to bring inflation down consistently to the central bank’s 2% target.

Market expectations of future rate hikes were considerably trimmed after last week’s inflation report and were further diminished after Tuesday’s inflation print. Market odds are currently between a 50-bps and a 25-bps interest rate increase in December. Rate hikes are expected to taper off in 2023 as the central bank moves into a stable interest rate. 

The US mid-term Congressional elections last week have also put pressure on the dollar, providing support for gold prices. Concerns that the Democratic party might lose control of Congress in the mid-term elections, leading to political instability in the US, pushed the dollar down, boosting gold prices. 

High volatility is expected for gold and dollar prices this week, as markets will await the US mid-term elections outcome. Concerns that the Democratic party might lose control of Congress in the elections, leading to political upheaval in the US, have pushed the dollar down. Votes are still being tallied and the battle for securing the Senate seems to be close.

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: