Gold continued its upward trajectory for the third consecutive day on Thursday, driven by a weakening dollar and concerns over the Federal Reserve’s rate decision in November. The precious metal also found support in the face of escalating tensions in the Middle East, which could potentially impact the global economy.
The most active gold futures contract on New York’s Comex, set to expire in December, closed with a gain of $12.20, representing a 0.6% increase and reaching $1,980.50 per ounce. This three-day rally marked a gain of over 2% for December gold in the current week, building on a more than 5% advance from the previous week. The session’s peak for the benchmark gold futures contract reached $1,990.20, a level not seen since mid-July.
The spot price of gold, which is closely monitored by some traders, reached $1,977.20 by 15:30 ET (19:30 GMT), rising by $29.52 or 1.5%. This brought the spot price’s gain to just over 2%, extending the previous week’s increase of almost 5.5%. The session peak for spot gold was recorded at $1,977.73, marking the highest point since mid-July.
The surge in gold prices was influenced by Federal Reserve Chair Jerome Powell’s comments, which weighed on the dollar’s value. Powell refrained from signaling a rate hike by the Fed at its November 2nd decision, emphasizing concerns over persisting inflation.
Ed Moya, an analyst at the online trading platform OANDA, pointed out that support for gold also came from the escalating conflict between Israel and Hamas, leading to increased volatility in the region. Moya stated, “Volatility in the region is mostly expected to remain elevated, and that should keep gold’s trajectory heading towards the $2,000 level.”
The decline of the dollar made commodities, which are denominated in the US currency, more affordable to international buyers. Powell’s reluctance to hint at an imminent Fed rate hike reinforced this trend.
During a speech and Q&A session at the Economic Club of New York, Powell stated, “Inflation is still too high,” adding, “Right now, the risk is still high inflation. It’s possible we are going into a more inflationary period, but it’s hard to know.” He acknowledged the challenge of determining the impact of higher rates on economic growth.
Despite the Fed’s 11 interest rate hikes between March 2022 and August 2023, which raised rates by 5.25% from a base rate of 0.25%, the Atlanta Fed estimated that the US economy grew at an annual rate of 5.4% in the third quarter of the year, compared to a mere 2.1% expansion in the second quarter. Inflation remained higher than expected, with consumer prices growing at an annual rate of 3.7% in September, the same as in August, exceeding the 3.6% forecast by Wall Street economists.
Powell acknowledged the strength of the US economy, stating, “The economy is a story of stronger demand. The economy is very resilient, growing strongly. Growth is running above its longer-run trend. That is a surprise,” but he emphasized the uncertainty regarding the economy’s growth with higher rates.
Powell’s comments prompted a sell-off in US bonds, with expectations that US interest rates would remain higher for an extended period. The yield on the benchmark 10-Year Treasury note reached the psychologically significant level of 5%, a level not seen since June 2007. However, Powell’s reluctance to signal another rate hike kept federal funds futures, an indicator of Fed rate decisions, unchanged within the prevailing 5.25%-5.50% range.
This led to a decline in the US Dollar Index, reflecting concerns that the dollar might face disadvantages if the Fed refrains from raising rates further in the near term.
