The price of gold held steady to post its second straight week of gains, as analysts became increasingly convinced that the US Federal Reserve would end its cycle of interest rate hikes. This sent the US dollar lower, boosting the appeal of gold as an alternative investment.
The spot price of gold increased by 0.1 per cent to reach $1,994.60 per ounce, while US gold futures rose 0.2 per cent to $1,996.20 per ounce. Gold’s modest gains this week follow several weeks of volatility as investors struggled to anticipate the Fed’s policy path.
Lukman Otunuga, FXTM senior research analyst, noted that the precious metal has entered standby mode as investors await fresh clues on the Fed’s policy outlook.
“It has traded within a range over the past few weeks, with all eyes on the $2,000 level,” he said, adding that a fresh fundamental spark could be needed to trigger a major move.
Meanwhile, the dollar index was on track for a second weekly drop, making gold less expensive for other currency holders.
Despite the stronger than expected jobs data, the view that the US labour market is softening was unchanged. This is because the number of job openings in the US fell by the most in nearly 2-1/2 years in October. The slowdown in job creation and openings signals that companies may pull back on hiring as the Fed hikes rates and monetary policy tightens. Analysts noted that this could be a positive development for gold, as it may allow the Fed to moderate its aggressive pace of rate hikes.
The minutes from the Fed’s most recent meeting, released earlier this week, showed that the central bank is likely to continue to take a cautious approach to monetary policy. All participants at the meeting believed it was appropriate to keep interest rates at their current level. The minutes also showed that the Fed is mindful of the risks associated with tightening monetary policy too quickly, and is committed to taking a careful approach.
Despite this, there is still some expectation among traders that the Fed may cut rates as early as March, according to the CME FedWatch Tool, which tracks market expectations of Fed policy changes.
A key reason why gold is seen as a safe haven in times of uncertainty is that it is a store of value and an inflation hedge. In other words, it tends to maintain its purchasing power over time, making it a reliable store of value during periods of economic turmoil. Additionally, gold is not tied to interest rates, unlike many other assets. As such, it tends to benefit when interest rates fall, as it becomes more attractive relative to other investments that pay interest, such as bonds. These factors make gold an attractive option for investors looking to protect their portfolios from the effects of inflation and lower interest rates.
