Gold set for weekly gain as Fed signals slower rate hikes

US dollar index holding near three-month low underpins gold’s recent advance  

  
Gold prices were slightly higher this week after the minutes from the US Federal Reserve’s last rate setting meeting indicated that policymakers were on the verge of slowing the pace of interest rate increases. 

Spot gold was at 1,751.98 at 10:16 GMT in London on Friday, 25 November, up about 0.2% on the previous week’s close. While gold futures were at 1,751.75 on Friday morning, little changed on the week.  According to most analysts, the spot gold price would need to push higher than 1,800 to confirm the recent upward trend. 

The potential for price gains in the yellow metal was limited by traders seeking to lock in returns after recent advances and amid thinner trading during the US Thanksgiving holiday. 

Minutes from the rate-setting Federal Open Market Committee’s 1-2 November meeting that were published on Wednesday, 23 November, showed that “a substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate”. 

The smaller rate hikes would allow policymakers to weigh the impact of their tightening cycle so far, according to the minutes.

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Recent volatility in spot gold prices 

Also underpinning gold prices, the US dollar traded near a three-month low and was on course for a weekly loss based on the US dollar index (DXY), which tracks the value of the greenback against six of its major counterparts. A weaker US dollar makes gold contracts, priced in the US currency, more attractive to buy for the holders of other currencies. 

The dollar index saw little change on Friday morning at 105.88 and it was almost 1% higher than last week’s close. The British pound was near a three-month high against the dollar (GBP/USD), and the euro traded close to a four-month high versus the greenback (EUR/USD). 

Rising US interest rates eroded the safe-haven appeal of holding gold, which pays no interest, in comparison with the US dollar and US Treasury notes. The Fed raised interest rates in four 75 basis point steps to a range of 3.75% and 4.00% by early November from close to zero at the beginning of the year.   

Gold prices have been under pressure since the Fed began its rate hike campaign in March to fight the fastest inflation in more than 40 years. Gold touched a three-month high last week after a rally sparked by a 10 November report on US consumer prices showed inflation may be slowing. US consumer prices rose 7.7% in October from the same month last year, less than 8% anticipated by economists, and compared with an 8.2% annual increase in September, according to the report.  

The Fed’s next meeting is on 14 December with futures pricing predicting a 76% probability of a 50-basis point rate hike, according to the CME Group’s FedWatch Tool. 

However, according to recent comments by Fed officials a pause in rate increases is not on the table at the moment. Participants at the rate-setting meeting agreed that inflation remained well above the Fed’s long-term inflation goal of 2% and inflation pressures have shown very few signs of abating, the minutes showed. While economic growth has slowed, “the labour market remained extremely tight, and nominal wage growth remained elevated,” according to the minutes.

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