Dollar’s weakness props up gold prices

Gold prices were in a downtrend last week but gained strength on Monday, rising to $1,947 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. The dollar weakened on Monday propping up gold prices, with the dollar index dropping to the 105.6 level. US treasury yields remained steady, with the US 10-year bond yielding approximately 4.64%. 

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.

A lot is riding on this week’s inflation data as the Fed has made it clear that its approach from now on will be data-driven. This week's CPI data on Tuesday and PPI data on Wednesday will likely play a decisive role in December's interest rate decision.

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: