Gold Set for First Weekly Gain in Five Weeks as Weak US Dollar Boosts Prices

If you’ve been paying attention to the price of gold lately, you know it’s been a rough month. For four weeks in a row the metal has been sliding as investors, jittery about rising interest rates, packed up their profits and walked away.

But this week, the story was turned upside down. Gold was on track for its first weekly gain in more than a month, reversing a prolonged period of losses.  
Upstox

Forget the confusing financial jargon and look past the headlines to see why gold is suddenly the darling of the trading floor again. It all adds up to a cocktail of gossip about the central bank, a declining currency and international jitters.

The Big Driver: A Shift In Expectations About Interest Rates

Gold’s rally this week was driven by a sudden shift in investor views of the economy’s future.

The market has feared for months that central banks, especially the US Federal Reserve, would continue to hike interest rates aggressively to tame inflation. But new economic signals have traders betting the era of aggressive hikes may finally be ending.  
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And why is this important for gold? Gold does not pay a monthly dividend or interest. A gold bar just sits there when you buy it. If bank interest rates are extremely high, you are losing guaranteed cash by holding gold. But when interest rates seem like they may plateau or even fall, then it is very attractive to hold gold again because you are not losing out on bank yields.

The Discount Currency

The second major factor is the behaviour of the US dollar. As the prospect of higher interest rates started to fade, the dollar began to slide in value.  
Bajaj Broking Limited

Gold is priced universally in US dollars on the international stage, so a weaker dollar is like a global discount code. If you are buying gold in Europe, India or Japan in your local currency, a falling dollar means the same ounce of gold is cheaper to buy straight away. Buyers all over the world rushed to buy the metal at a discount, sending the world price soaring once again.  
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The Geopolitical Security Net

If fears of interest rates are fading, there is another human reason people are holding on to gold now: fear of global instability.  
The Indian Express.

Recent diplomatic settlements have sought to defuse international stand-offs, but unpredictable geopolitical frictions have kept international markets on edge. When people see instability in the news, their survival instinct kicks in. They don’t want to hold volatile stocks or unpredictable foreign currencies. They want real things, concrete things, things that are accepted by all.  

The Indian Express.

Around the world, central banks are feeling the same anxiety, quietly buying tonnes of gold to build up their rainy day funds just in case things get worse.

Gold has been a falling knife for the past month. Now, as the global economy cools and tensions simmer in the background, investors are aggressively buying the dip.

The next round of inflation data will be critical for the continuation of this rally. If the coming economic reports are hotter than expected, the fear of interest rate hikes will creep right back into the market. But this week gold has firmly reclaimed its crown as the world’s favourite safety net.