Low dollar brings high Gold prices

September 21, 2016

Gold prices saw limited upward movements on the Monday’s close as the investors expect that the FED will delay the rate change, extending the period of cheap borrowings on the US Dollar. At the same time, the delivery trading for Gold on NYMEX in December slid 0.02% to $1,317.40 per troy ounce after finding the sessions resistance at 1,320.30 level.

On Monday the prices regained to $7.60, or by 0.58% after recovering from a two-month low. The ECB had decided to leave the size of the QE unchanged pressuring the FED to hold off with the rate increase.

The majority of market economists anticipate that the Federal Reserve will leave its policy rates unchanged shifting the rate hike case discussion to December as surveyed by Bloomberg. The central bank has plans to update investors on future economic projections.  It is expected that 30 minutes after the announcement of the FED’s policy decision, the chairman Janet Yellen will have a long-awaited speech. And the investors will scrutinise her speech for hawkish or dovish cues in relation to the economic forecast and the timeframe of future rate hikes.

Currently, the futures on the federal fund’s rate estimate the probability of a September hike at 12%. The odds for the December increase are estimated at 59%. The gradual increase of the rate shall decrease the threat on the gold price, as a series of sharp climbs would.

USD Index was fell in the morning by 0.2% to a 95.60 level but pared declines returning to Monday close. On Friday, the index touched 96.11, which was the peak of September.

Weak US dollar usually supports gold as it boosts the metal’s appeal as an alternative asset and decreases prices of dollar-denominated commodities for holders of other currencies.

The market is also waiting for the outcome of the Bank of Japan meeting on Wednesday, amid speculation that the Japanese central bank will extend the QE and cut rates deeper into the negative area. The Bank of Japan has already introduced negative rates and poured 80 trillion yen (750 billion dollars) a year to stimulate the inflation after decades of deflation and stagnant growth, while on the background wanting inflation expectations.

GBP/USD dived below 1.30 level spurring concerns that the Brexit fallout has finally started to take its toll. Australian Dollar rose 0.2% together with New Zealand Dollar while Oil prices fell on speculations of production freeze.

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