Gold gains on weaker dollar

Gold resumed its ascent on Thursday, benefiting from the dollar’s weakness and rising to $2,045 per ounce. If gold prices increase, resistance may be encountered near $2,048 per ounce, while if gold prices decline, further support may be found near $2,015 per ounce. 

Demand for safe haven assets increased this week, boosting gold prices. The war between Israel and Hamas is threatening to spill over the Middle East as tensions rise in the Red Sea area. Concerns that the Geopolitical crisis in the Gaza area may spread to neighboring countries are raising the appeal of safe haven assets, propping up gold prices.  

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 plummeted on Thursday on weak US economic data, with the dollar index dropping to the 101.8 level. US treasury yields remained firm, with the US 10-year bond yielding approximately 3.88%.       

US Final GDP for Q3 of 2023 was revised lower, boosting gold prices in expectations that low economic growth may induce the Federal Reserve to pivot to a less restrictive monetary policy. Preliminary GDP indicated that the US economy expanded by 5.2% in the third quarter of 2023, but the final print was revised lower to 4.9%. 

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. Expectations that the Fed may start cutting interest rates from the first quarter of 2024 are propping up gold prices.

The Fed kept interest rates unchanged at its December meeting, within a target range of 5.25% to 5.50%. The Fed’s forward guidance was more dovish than expected, hinting that the central bank is preparing to pivot to a less restrictive monetary policy. Market expectations of future rate cuts are boosting gold prices, as markets are currently pricing in a 25 bp rate cut in March with over 60% probability.

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Written by:
Myrsini Giannouli

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