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Gold Poised for Second Week of Gains as Fed’s Powell Signals Slower US Rate Hikes

Agnes Lovasz Agnes Lovasz 02/12/2022
Gold Poised for Second Week of Gains as Fed’s Powell Signals Slower US Rate Hikes Gold Poised for Second Week of Gains as Fed’s Powell Signals Slower US Rate Hikes
Gold Poised for Second Week of Gains as Fed’s Powell Signals Slower US Rate Hikes Agnes Lovasz

The US dollar index near a five-month low helps push the gold price to new heights 

Gold was on track for a second straight week of gains after a speech by US Federal Reserve chair Jerome Powell earlier this week all but confirmed a slower pace of US interest rate hikes. 

Spot gold was at 1,785.52 at 13:57 GMT in London on Friday, 2 December, close to the highest since mid-August, and up about 1.8% on the previous week’s close. Gold futures were at 1,800.05 on Friday morning, rising 2.6% on the week. 

Earlier in the day on Friday, the spot gold prices traded as high as 1,804.58. According to some analysts, a breach of the key 1,800 level for spot gold means that further upside may be harder to achieve as some traders are seeking to lock in profits at these prices.

 

gold price moves

Image source: ThinkTrader 

 

The gold price in recent months 

 

Powell said “it makes sense to moderate the pace of our rate increases” as borrowing costs approach a level sufficiently restrictive to bring inflation down, according to the text of his 30 November presentation posted on the Fed’s website. “The time for moderating the pace of rate increases may come as soon as the December meeting.”

US policymakers are next due to set interest rates on 14 December with futures pricing predicting a 79% probability of a 50-basis point rate hike, according to the CME Group’s FedWatch Tool. 

The Fed raised interest rates in four 75 basis point steps to a range of 3.75% and 4.00% by early November, US rates were close to zero at the beginning of the year. Higher US interest rates make holding gold, which pays no interest, less attractive than interest-bearing assets, such as the dollar and US Treasury notes. 

 

Gold prices pared their weekly gains after a US government report on Friday showed that US job growth was stronger than expected in November, despite efforts by the Fed to cool the labour market.

 

The US economy added 263,000 jobs in November, slightly down from an upwardly revised 284,000 jobs created in October, figures from the US Bureau of Labor Statistics showed. Economists had expected job growth of 200,000.

 

Powell’s comments acted as a drag on the US dollar, also supporting this week’s gold rally. The dollar index (DXY) traded at 104.54 on Friday morning, close to the lowest since the end of June, and was on course for a 1.4% weekly slide.

 

The dollar index tracks the value of the greenback against six of its major counterparts. A weaker US dollar makes gold contracts, which are priced in the US currency, cheaper in other currencies.

While it’s almost certain that US policymakers will make a smaller rate hike this month, according to recent comments by Fed officials, a pause in the tightening cycle is not part of the discussion yet. 

“After our November meeting, we noted that we anticipated that ongoing rate increases will be appropriate in order to attain a policy stance” restrictive enough for the inflation rate to fall toward the Fed’s long-term target of 2%, Powell said on Wednesday. “We will stay the course until the job is done.”


Have a view on where the yellow metal is headed next? Trade CFDs in any direction, long or short, on our award-winning ThinkTrader platform.

Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

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Carl Capolingua
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Carl Capolingua
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Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions. Specialising in Australian and US stock markets in particular, Carl uses a top-down approach to assess the global macro picture before using both technical and fundamental techniques to select stocks. He regularly appears as an expert commentator on a number of media outlets throughout the Asia-Pacific region.
 
 
 

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Lesego Mthombothi
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Mahmoud Alkudsi
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Mahmoud is a market analyst, with over a decade of experience in financial markets. He follows main market movers and tracks their effect on the price chart. Mahmoud mixes technical and fundamental tools with a deeper focus on the technical side, and with his wide experience in providing educational and guidance materials to all levels of traders, he helps them in making informed trading decisions. Before joining ThinkMarkets, Mahmoud was head of market research departments in different reputed financial companies, where he provided market analysis for a variety of asset classes, including FX, equities, indices, and commodity futures. As an experienced market commentator, he was hosted by too many print and broadcast media, including not limited to Sky News Arabia, France 24, Alarabyia, Alsharq-Bloomberg, and CNBC Alarabyia to discuss key risk events their clear impact on the price action. Mahmoud holds a Master of Business Administration (MBA) from Cardiff Metropolitan University of Wales, UK, and speaks Arabic, English, and Spanish.

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Shawn Lee
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Shawn Lee has over eight years of experience in the financial market as a market analyst. Shawn provides market key insights and trade ideas through the market and technical analysis. He also held trader roles and guided traders in maximising one’s trading success.

Carl Capolingua
Carl Capolingua
Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions.
Lesego
Lesego Mthombothi
Lesego Mthombothi is an experienced market research analyst and investment professional who proudly holds an honours degree in investment management and completed her CFA level 1.
Mahmoud Alkudsi
Mahmoud Alkudsi
Mahmoud is a market analyst with over a decade of experience in financial markets. Mahmoud mixes technical and fundamental tools with a deeper focus on the technical side, and has experience in providing guidance to all levels of traders.
Shawn
Shawn Lee
Shawn Lee has over eight years of experience in the financial market as a market analyst. Shawn provides market key insights and trade ideas through the market and technical analysis. He also held trader roles and guided traders in maximising one’s trading success.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
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