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Gold prices were able to gain a significant amount of their momentum back this week following their reopening. Investors noticed the price hikes, leading global bullion traders to increase demand for gold. What caused that? The answer is a weaker U.S. dollar along with the rising probability of a rate cut by the U.S. Federal Reserve.
The latest market updates show that spot gold rose 0.5% to approximately $4,215.69 per ounce. Moreover, U.S. gold futures prices were close to $4,244.80 per ounce. Such movements may seem insignificant from the outside, but they signal a broader shift in the global economic mood.
It is worth understanding in detail what took place, why it is important, and investors should figure out what to look for next.
Why the Dollar Is Weakening — And Why It Helps Gold
It's common for gold and the dollar to go against each other. When the dollar weakens, gold becomes more affordable for buyers in other currencies. So, worldwide demand is increasing, driving up the price of gold.
After a series of U.S. economic reports suggesting the Fed might be done tightening monetary policy, the dollar was weaker.
The following events led to the change:
1. Inflation Data in the U.S. Was in Line with Expectations
The core PCE index, a key inflation measure, did not yield any unpleasant surprises. This gives the Federal Reserve the power to lower interest rates without the risk of inflation going up again.
2. Consumer Spending Has Decelerated
Consumer spending in the U.S., a major driver of the American economy, is showing signs of slowing. In September, only moderate spending growth was recorded following three months of robust growth. This points to the economy gradually losing its momentum.
3. Private Sector Jobs Report Was Very Weak
There was a significant drop in U.S. private-sector payrolls, the largest decrease in the number of jobs over the past two and a half years. The occurrence of weak jobs usually leads central banks to adopt a more accommodative monetary policy stance.
As a result of these conditions, traders are currently pricing in an 88% probability that the Federal Reserve will cut interest rates by 0.25% at its next meeting.
When interest rates are low, the returns on savings accounts and bonds are generally less attractive. In such a case, investors are more likely to turn to gold — which does not yield any interest — as a better alternative.
How Other Precious Metals Reacted
The rise of gold was not a one-way street. A few other precious metals also got a fill of positive vibes.
Here's a straightforward table to make things more understandable:
