Gold faces headwinds from the strong US dollar
The U.S. dollar, buoyed by expectations of future Federal Reserve rate cuts, hovered around a two-month high on Tuesday, creating resistance for gold prices. A stronger dollar tends to make gold more expensive for holders of other currencies, limiting demand. The dollar index last stood at 103.12, close to its recent peak of 103.36, representing a 2.5% gain from the September 27 low of 100.157.
This strong dollar, together with higher yields on US government bonds, creates a challenging environment for gold in the short term. Independent analyst Ross Norman noted the pressure on gold, citing “profit taking and higher government bond yields” that have dampened further upside for the metal following gains of almost 30% so far this year.
Federal Reserve interest rate cuts and economic data in pictures
Traders are closely watching the Federal Reserve’s next moves, with an 87% chance of a 25 basis point rate cut in November according to the CME FedWatch tool. Although Fed Governor Christopher Waller urged caution on further rate cuts, the prospect of easing is still expected to support gold prices. Non-yielding assets like gold tend to benefit from lower interest rates because they lower the opportunity cost of holding precious metal.
Upcoming US economic data, including retail sales and industrial production, could further impact market sentiment. The Fed’s policy decisions are also tied to the central bank’s 2% inflation target, which could lead to additional cuts if inflation trends downward.