Gold prices have retreated this week as the US dollar rallies on revised market expectations over rate cuts.
Gold dropped sharply on Tuesday, from $2,650 to trade around $2,615 this week. In GBP, gold pulled back from the UK record of £2,036.56, and continues to hover around £2,000 this week. In Euros, gold is trading at €2,390 per ounce having set an all-time high of €2,434.66 last Friday. In all currencies however, gold is still up for the month, and remains historically high.
The price dip has been spurred by a stronger dollar, with the US dollar index up 1% in the past five days. After last month’s 50 basis point cut by the Fed, markets had become a little too optimistic of a repeat cut in November. The CME FedWatch tool now shows that markets are expecting a smaller 25 basis point cut, and there is even a small contingency that believe there may be no change to US rates on November 7th.
This has spurred the dollar’s recovery, and further dollar volatility will be likely in the weeks ahead as inflation, GDP and job data is released. If November’s meeting does result in no change to US rates, that could see further USD strength and a lower gold price, but a 25 basis point cut appears to be priced-in at this time.
Silver also suffered under the stronger dollar, falling from a high of $33.06 to trade around $30.50 at the time of writing. This puts the gold-silver ratio back above 85, and leaves silver looking a good buy while gold sits near all-time highs.
Fears remain over escalation in the Middle East, with the US worried about being dragged into conflict with Iran. Israel are still expected to retaliate against Iran’s missile strike last week, and this could prompt further escalation.
Price volatility will likely be high for the next four weeks (and potentially beyond), in the run up to the US election and next Federal Reserve meeting, while escalation in the Middle East remains an unknown factor. As such, new price records, and dips like this week are to be expected along the way.
