On Wednesday (November 22nd), entering the European market, the market did not have much risk appetite, and the bond market was not volatile. The US dollar attempted to stabilize after yesterday's sharp decline, while gold fluctuated around $2000. Currently, the market expects the Federal Reserve to have ended raising interest rates.
Gold prices remained stable above the $2000 level on Wednesday, helped by the overall weakness of the US dollar and a decline in US bond yields, as the market expected the Fed's tightening cycle to be nearing its end.
Spot gold rose 0.1% to around $2000 per ounce. The gold price hit a three week high of $2007.29 in the previous trading day.
The US dollar rose 0.1% against other currencies, but remained near the over two and a half month low hit on Tuesday.
The decline of the US dollar
The US dollar rebounded from a two-and-a-half-month low on Wednesday as the minutes of the last Federal Reserve meeting hinted that although the rate hike cycle seemed to have ended, interest rates may remain restrictive for some time.
The US dollar index, which measures the exchange rate of the US dollar against a basket of currencies, rose 0.2% to 103.78, breaking away from the lowest level of 103.17 hit since the end of August on Tuesday. The index fell by about 2.6% in November and is set to record its worst monthly performance in a year.
Analysts also stated that market participants are eager to withdraw funds before liquidity dries up before the Thanksgiving holiday in the United States.
The weakening of the US dollar makes gold less expensive for other currency holders.
The US bond yield (yield), which once boosted the US dollar, has also fallen from its multi-year high hit in October as investors increased their bets that the Federal Reserve has completed rate hikes as US inflation slowed down in the same month.
The overnight, the yield of US treasury bond bonds fell again, and the yield of benchmark 10-year treasury bond is currently trading at 4.4003%.
Matt Simpson, senior analyst at City Index, said: "The yield and the weakening of the US dollar are clearly beneficial for gold prices, thanks to weak US economic data, which makes it possible for the Federal Reserve to cut interest rates for the first time in 2024
He added, however, that "the decline in the US dollar seems excessive... due to the upcoming four day holiday in the United States, gold currently lacks support and cannot fully stand at $2000.
Fed minutes repeat the same old tune
The minutes of the meeting from October 31st to November 1st show that Federal Reserve officials agreed at the last policy meeting that they would act "cautiously" and only raise interest rates if there were issues with the progress of controlling inflation. They reiterated recent statements by policy makers, opening the door to further tightening policies, even though the market is already anticipating interest rate cuts starting from early next year.
Niels Christensen, Chief Analyst at Nordea, said: "The market has fully digested the expectation of interest rate cuts nearly four times next year, which looks very aggressive
That is to say, it is not uncommon for the Federal Reserve to cut interest rates by 50 basis points when it begins, so it is possible, "Christensen added.
Data released on Tuesday showed that US existing home sales fell to their lowest level in more than 13 years in October.
According to the Fed Watch Tool of the Chicago Mercantile Exchange, the market currently expects a close to 60% probability of the Fed cutting interest rates by at least 25 basis points by May. Lower interest rates lower the opportunity cost of holding gold.
Meanwhile, customs data shows that Switzerland's gold exports rose to their highest level since May in October, due to a surge in gold exports to India to meet the country's holiday demand.
