Gold price: Yellow metal firms, USD dips on dovish Fed cues

Gold edges higher as dollar retreats on dovish Fed cues

The price of gold rose to trade around the $1,870 per ounce mark on Wednesday, remaining close to 3% up this week on dovish signals emanating from the U.S. Federal Reserve (Fed).

The U.S. dollar index, which tracks the greenback’s performance against six major currencies, dipped to nearly a two-week low to trade around 105.85, tracking a slide in U.S. Treasury yields, which have retreated from their 2007 highs, scaled last week.

On Tuesday, Atlanta Fed President Raphael Bostic said there was no need for the central bank to implement further interest rate hikes to address inflation and bring it back to the 2% target, according to a Reuters report citing the official.

Later in the day, Minneapolis Fed President Neel Kashkari echoed similar sentiments, saying recent rise in yields on longer-term U.S. Treasuries may mean the Fed need not raise rates as much as otherwise. One of the policymaker’s quotes, cited by Reuters, read:

"It's certainly possible that higher long-term yields may do some of the work for us in terms of bringing inflation back down. But if those higher long-term yields are higher because their expectations about what we're going to do has changed, then we might actually need to follow through in their expectations in order to maintain those yields.”

Gold price drivers: Market watches Fed for further dynamics

Currently, the prevailing market sentiment suggests that the Fed will maintain interest rates at the upcoming November policy meeting, with the CME FedWatch tool indicating an 88.2% probability of the central bank keeping the federal funds rate within the current range of 5.25%-5.5%.

Investor attention is now focused on two key events: the release of the central bank's meeting minutes on Wednesday and the publication of critical U.S. inflation data on Thursday.

On Monday, the gold price saw a sizeable 1.6% surge, driven by the Israel-Hamas war in the Middle East, which escalated geopolitical risks and heightened safe-haven demand for the precious metal.

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Gold price forecast: Kitco says bulls aim to close above $1,900 resistance

In a summary of recent market events, Kitco Senior Market Analyst Jim Wyckoff wrote:

“The marketplace is keenly focused on the Middle East as Israel has declared war on Hamas. Many veteran market watchers, including this one, have been surprised the marketplace has not reacted more strongly to the major geopolitical crisis. The Wall Street Journal reported financial markets reacted more strongly to last Friday’s U.S. jobs report than they did to the weekend violence in the Middle East that for Israel was the worst in 50 years.

One respected CNBC commentator summed it up by saying at present the marketplace is not factoring in a further escalation in the Israel-Hamas conflict, meaning no other countries like Iran, Syria or the U.S. will become significantly involved. Many times, when unexpected market shocks like this one occur, traders and investors quickly factor into market prices a worst-case outcome, on a knee-jerk reaction. Then, as the worst-case scenario does not play out, market prices begin to retrace their initial big moves. Not the case this time. This veteran market watcher finds it unlikely the Israel-Hamas war will not significantly involve any of the aforementioned countries, which would mean a significant escalation in the conflict. To put it simply: This matter will very likely get worse before it gets better. Beware traders and investors”.

Wyckoff’s technical analysis and gold price forecast indicated that there are cues that a market bottom may be in place.

“The bears have the firm overall near-term technical advantage. A five-month-old price downtrend is in place on the daily bar chart. Bulls’ next upside price objective is to produce a close above solid resistance at $1,900.00. Bears' next near-term downside price objective is pushing futures prices below solid technical support at $1,800.00. First resistance is seen at today’s high of $1,879.10 and then at $1,900.00. First support is seen at this week’s low of $1,857.50 and then at $1,849.00”.

Gold price projection: Other analysts eye $1,910 as key resistance level

In a gold price projection published on October 11, Investing.com analyst Damian Nowiszewski eyed a resistance level slightly higher than the one identified by Wyckoff:

“Gold's recent upward momentum, starting from the demand zone at $1810 per ounce, has slowed down a bit, but there's still potential for further growth. Right now, buyers have their sights set on the resistance at around $1910 per ounce

In the short and medium term, a renewed attack on $2,000 per ounce could be problematic, as the Fed is not considering starting a cycle of interest rate cuts any time soon”.

The gold price forecast shared by economic data aggregator TradingEconomics saw the commodity trading at a potential average of $1,853.05 by the end of this quarter. The platform’s 12-month gold price projection estimated it to trade at $1,916.63 by early October 2024, indicating a potentially bullish outlook.

When considering gold and other commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss. Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.