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Gold prices rise thanks to weaker USD

The price of gold rose slightly on the commodity market after the exchange value of the US dollar (USD) changed its trading trend. During the night – from Monday 24 October to Tuesday 25 October – in the US, the USD exchange value fell slightly against other major world currencies. However, according to analysts and financial strategists of the commodity market, investors and gold traders are now waiting for further stimuli from the Federal Reserve System (Fed) regarding raising interest rates.

On 25 October 2022, at 6:39 am CET, investment gold traded on the Commodities Exchange Centre (COMEX) commodity market at US$ 1,655.80 per troy ounce with a daily increase of  +0.10% so far. According to technical analysis data, since the beginning of this year this current price represents a decrease of -10.1%, and in an annual comparison it is a decrease of -8.97% over the last 52 weeks. For several weeks the current price of gold has been moving within US$ 1,600 to 1,700 per troy ounce. The US dollar’s increasing exchange value is supported by the Fed on the basis of increasing interest rates and predictions of further growth. At the time mentioned, according to the US Dollar Currency Index (DXY) we saw the USD at a price level of 111.93 with a daily decrease of -0.05%.

In this case, according to analysts and financial strategists, the so-called inverse rule about the decreasing price of gold in the event of an increase in the exchange value of the USD clearly applies. Investors are interested in protecting their finances from inflation, but a strong USD decreases the demand for gold and thus its price. Although gold is seen as a hedge against inflation, higher interest rates raise the opportunity cost of holding zero-yielding gold while increasing the US dollar’s returns from holding US Treasuries. It is this situation that has occurred at the moment, when US bond yields are at their record values, as the current yields of all US government bonds during October of this year, recorded yields that did not fall below the threshold of 4% annual yield. For example, during the European trading morning of 25 November, the 10-year US government bond (Bond US 10-YR) traded with a yield of 4.207% p.a. and the 30-year (Bond US-90YR) with a yield of 4.35% per year.

According to financial market economists and analysts polled by Reuters, on 2 November the Fed’s  Federal Open Market Committee (FOMC) will initiate its fourth consecutive interest rate hike, with a highly probable estimate of another 75 basis points, i.e. +0.75% p.a. The FOMC members have said some time ago that the central bank should not stop raising interest rates until inflation has fallen to about half of current levels. The current level of inflation in the US, according to the latest published data as of September 2022, has fallen to 8.2%, but it still represents record values for the last 40 years.

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