Gold has proved surprisingly buoyant to climb above $1,700 an ounce benefiting from a weakening in the US dollar – which the precious metal enjoys an inverse correlation with.
Gold may also be benefiting from the sell-off on cryptocurrencies with investors switching back to the time-worn haven asset after seeing the problems the challenger is experiencing.
The fact that gold has been able to make these gains even after last week’s latest rise in interest rates by the Federal Reserve points to increased market jitters. Ever-increasing interest rates have put gold under considerable pressure with the precious metal’s lack of yield making it less attractive compared with interest-paying assets such as gold.
As the results of the US midterm elections emerge, investors will pay close attention to the dollar’s reaction with the initial take pointing to fewer gains for the Republicans than initially forecast.
Further weakening of the dollar will provide more scope for gold to climb higher yet but the reality of another interest rate hike likely coming from the Fed in December, as well as talk of more hikes by the European Central Bank and the Bank of England among others, should limit how much further gold can gain.
For the time being at least, gold has broken out of its range. If it can end the week still above $1,700 an ounce then it will create a new phase for gold’s price action.
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