Gold price prediction: the US dollar’s strength test is on the horizon

gold price

Gold price briefly dropped below the critical level of $1,700 on Wednesday amid a strong US dollar. This will likely remain the main driver in the ensuing session as investors await next week’s US inflation data for further cues on the Fed’s next move.

What’s driving the market?

As has been the case in recent months, the strength of the US dollar continues to weigh on gold price. In fact, at the beginning of September, the dollar index hit the psychological level of $110 for the first time since August 2002. Subsequently, the precious metal retested its lowest level year-to-date at $1,688.46.

On Wednesday, gold price momentarily dropped below the critical level of $1,700 per ounce after the recent data that signalled some recovery in the US economy. On Tuesday, the ISM non-manufacturing PMI read 56.9; beating July’s 56.7 and economists’ forecast of 55.1. The expansion of activities in the US service sector  has lowered concerns over a recession.

Where to next?

As a reaction to the data, the dollar index hit a fresh 20-year high of $110.72 earlier on Wednesday. In the ensuing sessions, the currency will likely be subject to subtle movements even as it remains steady on its uptrend. This is founded on the expectation that investors will be keen on the US inflation data scheduled for release next week.

The consumer price index is set to test the strength of the greenback and subsequently offer cues on the Fed’s move in its September meeting. Despite gold’s status as a safe haven in times of economic turmoil, an environment of high interest rates has been weighing on its price.

There are higher bets that the US central bank will approve a third super-sized interest rate hike of 75 basis points in its September meeting. Based on the fundamentals, gold price will likely hover around $1,700 in the short term. Granted, I expect it to hold steady above its year-to-date low of $1,680.27. Even so, a rebound will likely have it face resistance at $1,725.

gold price
gold price

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