Gold supported by rate cut expectations

Gold weakened slightly on Thursday as the US dollar and treasury yields gained strength. Gold prices fell only marginally lower, however, dropping to $2,037 per ounce. If gold prices increase, resistance may be encountered near $2,053 per ounce, while if gold prices decline, support may be found near $1,984 per ounce. 

Gold prices gain strength as the US dollar and treasury yields decline. Increased expectations that the Fed has reached its rate ceiling have been driving treasury yields down, boosting gold prices. 

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 edged higher on Thursday on signs that US inflation is easing. The dollar index edged higher, rising to the 103.2 level. US treasury yields also rallied, with the US 10-year bond yielding approximately 4.30%.  

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. 

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. Gold prices are propped up by expectations that the Fed’s tightening cycle is coming to an end, signaling the start of a Fed pivot. 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%. Market odds of another rate hike in December have dropped to zero, while markets are pricing in rate cuts as early as March. Expectations that the Fed may start cutting interest rates from the first quarter of 2024 are propping up gold prices.

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Written by:
Myrsini Giannouli

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