Gold price extended previous gains on Wednesday as the US dollar eased. While the metal remains under pressure, hopes that the Fed may ease on its rate hikes towards the end of the year has offered some support to the market.
What’s driving the market?
US dollar
In recent months, gold price has been under pressure from a strong US dollar. As is the case with other dollar-priced assets, the previous metal tends to move inversely to the value of the greenback. This is founded on the fact that a strong US dollar makes gold more expensive for buyers holding other currencies.
In fact, since March, gold price has declined by over 20%. In comparison, the dollar index , which tracks the value of the US dollar against a basket of six major currencies, has surged by over 20% year-to-date (YTD).
An ultra-hawkish Federal Reserve has largely been behind the US dollar rally and subsequent downtrend in gold price. In an effort to deal with the decades-high inflation, the Fed has increased interest rates by 300 basis points since March. Analysts now expect the bank to approve another super-sized rate increase of 75 basis points in November and 50 basis points in December.
Hopes over Fed’s policy
While the precious metal remains under pressure, it has recorded gains for two consecutive sessions amid hopes that the US central bank will ease on its aggressive rate hikes as from December. A recent article by The Wall Street Journal indicated that the Fed will likely debate on the size of its futures hikes after approving an increase of 75 basis points in its next meeting in November.
Gold price tends to be sensitive to high interest rates as it increases the opportunity cost of holding the non-yielding bullion. As such, signs that the Fed may ease rates to 50 basis points in December may boost the metal past the critical level of $1,700 per ounce.
On the data front, the US GDP scheduled for release on Thursday will further influence the gold market. Besides, US core inflation data is scheduled for release on Friday.
