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Strong US dollar keeps the price of gold down

During the European Wednesday morning of 12 October 2022, gold trading has experienced a bear market on the commodity market. According to analysts, the strong exchange value of the US dollar (USD) – as the major commodity currency – is keeping the spot gold price below US$ 1,700 per troy ounce and this trend is likely to continue due to the further strengthening of the USD due to additional US interest rate hikes by the central bank – Federal Reserve System (Fed).

On 12 October at 9:54 am CET, investment gold traded on the Commodities Exchange Centre (COMEX) commodity market at US$ 1,676.30 per troy ounce with a daily decrease of -0.58%. This current price of gold, according to technical analysis data, represents a decrease of -9.03% since the beginning of 2022. In the year-on-year comparison, the price decrease has been -5.39% in the last 52 weeks. At the time mentioned, according to the US Dollar Currency Index (DXY), we saw the USD at a price level of 113.30 with a daily strengthening of +0.07%. Overall, according to technical analysis data, the exchange value of the USD has increased year-on-year by +20.08% over the last 52 weeks and of that by +18.01% since the beginning of this year.

According to analysts and financial strategists, the current decline in gold prices reflects the investment sentiment of traders and investors as the short term does not give an opportunity for the price of gold to rise due to the predictions of further interest rate hikes in the United States of America (USA) through the key committee of the Fed – the Federal Open Market Committee (FOMC). However, according to these experts, two financial market events can cause a certain recovery in the price of gold, one of them is the detailed report from the FOMC meeting, which took place in September of this year, referred to as the Fed Minutes, which will be published today in the afternoon of the European hours on Wednesday 12 October 2022. From this report, financial strategists and analysts will learn how and in what proportion FOMC members voted for their decisions, from which the development of further decisions can then be predicted very accurately.

The second key data will be the publication of the current state of the inflation rate in the USA on Thursday, 13 October. Inflation data are very important for the development of the price of gold in combination with the exchange value of the USD, as gold is still considered an investment instrument serving as a custodian of permanent financial value. However, this precious metal does not bring any income during its holding, so for investors, its purchase price and the outlook for the potential growth of the gold price is what matters. Although gold is seen as a hedge against inflation and economic uncertainty, rising interest rates are reducing the appeal of the zero-interest-paying asset, analysts said. Meanwhile, Cleveland Federal Reserve Bank President Loretta Mester said on Tuesday, 11 October, that even with a big rate hike this year the central bank still needs to get soaring inflation under control and will have to move to tighten monetary policy. And on the basis of this, experts state that a significant increase in gold prices on the commodity market cannot be expected, at least until the end of this year and the beginning of 2023, unless there is a change in both the economic and possibly fundamental geopolitical changes.

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