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Gold Market Analysis
September 30, 2022

Gold Futures Head Higher As Dollar Holds Below 20-Year Highs


“Gold futures climbed on Friday, shrugging off rising inflation in Europe and the U.S., as the dollar traded below a 20-year high reached earlier this week.

Prices for the precious metal, however, were poised to log losses for the month as well as the third quarter.

What's happening
Gold has continued to trade near its highest level in a week despite another batch of worrying inflation data out of the eurozone, which showed consumer-prices are rising at their fastest pace since World War II, one day after an inflation report out of Germany revealed something similar.

Data in the U.S. meanwhile, showed that the personal-consumption price index, a key gauge of U.S. inflation, rose a mild 0.3% in August, but prices are still going up at the fastest pace in 40 years.

Lately, movements in the price of gold and silver have been dictated mostly by the relative value of the U.S. dollar along with rising Treasury yields.

Gold's decline for the month and quarter really has to do with the strength in the dollar, said Jason Teed, co-portfolio manager of the Gold Bullion Strategy Fund , adding that if you look at the U.S. dollar index for the last quarter, gold and currency have been moving inversely to each other.

For the third quarter, gold futures based on the most-active contract trade roughly 8% lower, while the ICE U.S. Dollar Index has gained 7%. The dollar index on Friday is trading below its 20-year high of 114.78, reached on Wednesday.

The dollar has moved up because inflation is higher, and the Federal Reserve can raise interest rates higher than other developed countries in its attempts to tame inflation, making our currency more attractive, Teed, who's also director of research at Flexible Plan Investments, told MarketWatch.

The outlook for gold prices is difficult to gauge, he said, but there's "additional room" for further price declines as long as rates haven't topped out.

Teed emphasizes that he doesn't see gold starting to recover until inflation numbers come down to a point where the Fed can "take their foot off the brakes" and rates either "discontinue" moving up, or come down -- but that's many months off.

Once inflation sees a meaningful turnaround, then there wouldn't be much of a headwind for gold and that may be a good time to buy the metal, he said.”

*This information is solely an excerpt of a third-party publication and is incomplete. Please subscribe to the referenced publication for the full article. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.

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