US data pointing to slowing inflation strengthened hopes that the Fed will slow down its aggressive rate hikes. Impacted by this, the gold price is on track to post its biggest weekly gain in more than two years. Analysts interpret the market and share their forecasts.
“If the enthusiasm continues, gold will probably rise much more”
Spot gold was up 0.4% at $1,761.73 at the time of writing. Prices are up 4.7% so far this week, heading for their biggest gain since July 2020. U.S. gold futures rose 0.6% to $1,764.50. Meanwhile, the dollar index (DXY) fell 0.3%. Thus, it headed for its biggest weekly drop since March 2020. A weaker dollar makes gold more attractive to offshore buyers.
cryptocoin.com As you follow, US CPI rose less than expected in October. This was a sign of slowing inflation. It also raised hopes that the Fed will begin to cut back on high rate hikes. OCBC FX strategist Christopher Wong comments:
The softer-than-expected CPI data supports a step down in the rate of increase at the Fed meeting in December. It is also possible that this will cause the dollar trend to move lower. Hence, it provides a window for gold to show a moderate recovery. If the enthusiasm in the market continues, the gold price will probably go up much more. It is possible to reach $1,767 in the near term.
“Gold now has higher mobility”
Market participants now see a 71.5% chance of a 50bps rate hike at the Fed’s December meeting. Meanwhile, the Managing Director of the International Monetary Fund (IMF), Kristalina Georgieva, said on Thursday that the biggest challenge facing central bankers is curbing inflation. David Meger, metal trading director at High Ridge Futures, comments on the latest developments as follows:
There is an expectation that the Fed will begin to slow the pace of these rate hikes as we begin to see data showing inflation falling. Therefore, it is possible to say that the dramatic pressure on the gold market in the last few months has been lifted. We can also argue that gold now has higher mobility.
“This is where the price of gold explodes”
The dollar fell 2% to a two-month low after US data. This, in turn, made gold cheaper for holders of other currencies. Indicator US 10-year Treasury yields also hit a one-month low. In a note, OANDA senior analyst Edward Moya highlights:
A chilly inflation report convinced markets that the Fed would move on to a half-point rate hike. Presumably, the markets are waiting for the tightening to be loosened after the FOMC meeting in March. Gold is exploding here. Besides, if the dollar weakness persists, a steady path towards the $1,800 level is possible.
“US CPI also brought very good news for gold price”
In a statement after the CPI data, AvaTrade chief market analyst Naeem Aslam draws attention to the following:
Inflation eventually began to drop like a rock in the US. This is the best news anyone can expect. The dollar index fell after this data as “traders know that inflation is moving in the right direction”. The US inflation data also brought some very good news for the price of gold, which is now firmly above the 1,700 price level. One thing is for sure, the Fed will continue to raise interest rates. But he won’t need to be aggressive about it. This means that the rate of increase in interest rates will now slow down.
“Gold price will remain under pressure among hawk central banks”
Gold is holding above the key $1,700 mark. However, economists at ANZ Bank expect the yellow metal to remain under pressure as the dollar holds its ground. In this context, analysts make the following assessment:
The hawkish tone of central banks keeps US real yields and the US dollar on a strong footing. Recession fears are mounting due to rising rates and sticky inflation. We’re seeing some safe harbor flows. But not enough to reverse the downtrend anytime soon. We expect gold to remain under pressure.
