Gold prices soared to their highest level since September 7 on expectations that the Federal Reserve will keep interest rates low. The weaker dollar also lifted the bullion’s appeal to investors using rival currencies. The greenback fell 0.4% from a more than one-year peak reached on Friday.
Spot gold is currently trading at $1,815.29 per ounce as of 0840 GMT.
On Wednesday, the Feds formally announced its plan to taper its massive bond-buying program. But it restated its view that the current high inflation would be transitory and signaled that it would wait for more growth before raising interest rates. Chairman Jerome Powell blamed the global supply chain problems for the uncomfortably high inflation. He believes that when the bottlenecks ease, the economy and the labor market will grow stronger.
Other central banks were similarly dovish. The Bank of England’s Monetary Policy Committee voted to keep its benchmark interest rate at 0.1% and continue its £875 billion bond-buying program.
European Central Bank (ECB) policymakers pushed back a 2022 interest rate hike. The annual inflation has reached a 13-year high of 4.1%, but the ECB is confident that eurozone inflation will fall next year.
Bank of Japan policymakers agreed to maintain an ultra-easy monetary policy. The inflation rate remains below the central bank’s target despite the rising food and energy prices.
IG Markets analyst Kyle Rodda suggested that central banks will not raise interest rates if inflation remains within or slightly above their targets. He predicted the gold price to climb to $1,900 if it breaks above the $1,830 level.
DailyFX strategist Daniel Dubrovsky added that gold’s breach of the $1,813-$1,808 resistance zone paved the way to climb the $1,825-$1,834 level. IG Client Sentiment data showed that most traders are net-long. It indicates prices may fall, but the recent trend suggests a bullish-contrarian trading bias. He also mentioned the possible formation of a Golden Cross between the 20- and 50-period SMAs. It is a sign of an upward technical bias.
In physical trading, gold demand in India soared during the festival season. A local jeweler said retail demand during Diwali and Dhanteras rose 25% higher than the pre-pandemic level in 2019. Indian consider buying gold during the Dhanteras festival as auspicious. Local consumers also purchased gold for weddings after the government eased most COVID-19 restrictions.
In China, demand was steady. But traders expect it to pick up in preparation for the Chinese New Year. In Singapore, the surge in coronavirus cases dampened retail demand.