Optimism for gold with smaller hikes anticipated

The price of gold fell slightly from a 10-week high early on Monday with remarks coming from members of the Federal Reserve that the US central bank will continue its firm position against inflation, Investing.com reported.

“Bullion prices logged their best week in 30 months after US inflation read lower than expected for October, boosting hopes that the Fed will soften its hawkish stance in the coming months and reduce pressure on metal markets from rising interest rates.

“But Fed Governor Christopher Waller said on Sunday that while the bank is considering a slower pace of rate hikes, it should not be seen as softening in its battle against inflation,” the financial platform’s Ambar Warrick said.

And high interest rates are expected to weigh on metal markets in the near-term, he added.

“Spot gold fell 0.4 per cent to $1,764.24 an ounce, while gold futures fell a similar amount to $1,766.95 an ounce. Both instruments surged over $90 in the past week, while the dollar retreated.

“But the yellow metal is still down against the dollar this year, with prices down substantially from their annual peaks of over $2,000.

“[Gold] lost its safe haven status, and also largely failed as an inflation hedge this year as rising interest rates pushed up the cost of holding non-yielding assets,” Warrick said.

But he added there was room for optimism with smaller rate increases anticipated.

“While October’s inflation reading was milder than expected, it was still well above the Fed’s two per cent annual target. This is likely to see the bank keep raising interest rates, until it sees clear signs that inflation is easing.

“Expectations that the Fed will hike rates by a smaller 50 basis points in December grew substantially after the reading, with markets pricing in a nearly 81 per cent chance of a smaller hike,” he said.

Historically, in the global financial market, when inflation falls or increases to some extent and the US dollar is close to the target or based on the interest rate, the price of assets such as stocks or gold will push up.

According to the fundamentals, investors could buy gold at $1,763 or at the current price between $1,770 and $1,768.00 per ounce, setting the take-profit function at $1,788.66 per ounce and the stop-loss at $1,755.

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