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.
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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.”
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