Gold Climbs as the Dollar Weakens; Investors Focus on Other Major Central Bank Meetings

Gold Bar

Gold prices rose on Thursday on a weaker dollar. The greenback fell from a three-week peak hit in the previous session after the Federal Reserve announced plans to end bond purchases in March. Now, market participants shifted their focus on the outcome of other central bank meetings this week.

Spot gold is currently trading at $1,785.17 per ounce as of 0801 GMT.

On Wednesday, after its two-day policy meeting, the Fed signaled that it has met its inflation target. The central explained that the ending of the bond-buying program will pave the way for three quarter-percentage-point interest rate hikes by the end of 2022.

Michael Langford, a founding partner and executive director of AirGuide, said any weakness in the dollar would result in a corresponding rise in gold prices. He also predicted that the winding back of monetary and fiscal stimulus would keep the bullion below $1,800 per ounce. It is because reduced stimulus and higher interests rate lift Treasury yields. And higher yields raise the opportunity cost of holding the non-interest-bearing metal.

On the technical front, DailyFX analyst Thomas Westwater noted that while the bullion extended its gains, it failed to break the resistance between $17,80 and $1,790. One reason for this is the decline in the 20-day Simple Moving Average also weighs on gold’s price action.

His DailyFX colleague, senior strategist Christopher Vecchio said the market would be analyzing the “dot plot” in the Fed’s Summary of Economic Projections. They would like to know the timeline for the first interest rate hike in 2022.

Vecchio added that there could be a reversal in the central bank’s hawkish announcements on Wednesday. Rates markets are priced for more than two rate hikes in 2022 and almost four hikes in 2023. If the dot plots show only one rate hike next year, it will constitute a dovish outcome for markets.

Meanwhile, market participants are monitoring the release of U.S. weekly initial jobless claims. They are also waiting for the policy meetings of other major central banks his week. These include the European Central Bank (ECB), the Bank of England (BOE), the Swiss National Bank and Norges Bank.

Analysts expect ECB officials to confirm the ending of the 1.85 trillion-euro Pandemic Emergency Purchase Program (PEPP) in March. They are also likely to announce a slow sown in bond buying in the first quarter of 2022.