Gold prices, contingent on Fed moves and economic data

XAU/USD surpassed $2,000 mark for second week in a row
Gold prices, contingent on Fed moves and economic data
Gold prices’ trajectory is dependent on several factors, including the Fed’s actions and data

Decisions and economic data from the US Federal Reserve (Fed) are poised to exert a substantial influence on the movement of gold prices. In the previous week, gold (XAU/USD) witnessed a significant surge last week, exceeding the $2,000 mark for the second consecutive week. 

A weakening US dollar largely fueled this upward trend. This comes amid speculation that the Fed might temporarily halt its interest rate hikes.

XAU/USD represents the value of one ounce of gold in US dollars.

Read: Gold heads for gains for the second week in a row

Softer US dollar, interest rate hike pause

Last week, the dollar index, which measures the US currency against six major peers, saw a 0.4 percent. It dropped for the second consecutive week. This decline is linked to sluggish economic data. This further heightened market players’ expectations that the Fed will pause increasing interest rates and take a more dovish stance.

Earlier in November, the Fed announced the decision to maintain interest rates at a 22-year high. The central bank aims to bring inflation down to its long-term target of two percent. They attempt to so without adversely affecting the robust economy.

According to the minutes of the meeting published on Tuesday last week, “All participants judged that it would be appropriate for policy to remain at a restrictive stance for some time until inflation is clearly moving down sustainably toward its two percent target.”

Traders are fixed on a 99.5-percent probability that the Fed will maintain current interest rates in December. Additionally, they are considering a 60-percent likelihood of a rate reduction in May next year, which is a sentiment that bodes well for gold prices.

When interest rates are lower, the opportunity cost of holding gold also decreases.

As investors continued to evaluate the interest rate outlook and the wider economic landscape, 

The US Treasury yields saw an increase, with the benchmark 10-year yield climbing more than 5 basis points on Friday.

Gold prices trajectory

Experts consider that gold prices seem to be entering a consolidation phase in the near term. Analysts, including those from Commerzbank, suggest that a substantial move in gold prices may materialize only when the Fed commits to interest rate reductions.

While potential future reductions in interest rates could be good for gold prices in the medium term, the immediate price trends for gold may not show a quick and strong response due to the continuous economic analysis.

This week could provide more insights into the economy, especially with forthcoming data on gross domestic product (GDP), personal inflation and the ISM manufacturing index, also known as the purchasing managers’ index (PMI). 

Moreover, scheduled speeches from several Federal Open Market Committee (FOMC) members are anticipated to shed light on the Fed’s stance on interest rate adjustments.

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