Gold Prices Rise as Softer Dollar and Yields Provide Tailwind

23 Nov 2023 , 08:15 AM

Gold prices have been on an upward trajectory in recent days, buoyed by a weakening US dollar and retreating Treasury yields. The precious metal touched a high of $1,994.28 per ounce earlier this week, marking a significant gain from its recent lows.

Softer Dollar Enhances Gold’s Appeal

A weaker US dollar is generally considered to be a positive factor for gold prices. This is because when the dollar depreciates, it makes gold more affordable for investors holding other currencies. As a result, demand for gold tends to increase, pushing prices higher.

The recent softening of the dollar can be attributed to a number of factors, including:

• Slowing US economic growth: Expectations for US economic growth have been revised downward in recent months, which has weighed on the dollar.
• Easing rate hike expectations: The Federal Reserve is widely expected to slow the pace of its interest rate hikes in the coming months. This has led to a repricing of risk assets, including the dollar.

Yields Retreat, Boosting Gold’s Shine

Treasury yields, which are the interest rates paid on US government bonds, have also been retreating in recent weeks. This has made gold more attractive to investors relative to fixed-income investments.

The decline in yields can be attributed to a number of factors, including:

• Concerns about a potential recession: Investors are increasingly concerned about the possibility of a recession in the US, which has led to a flight to safety and a decrease in demand for riskier assets like stocks.
• Reduced inflation expectations: Inflation expectations have also been moderating in recent months, which has taken some pressure off the Federal Reserve to raise rates aggressively.

Gold’s Outlook Remains Positive

Analysts believe that gold’s upward momentum is likely to continue in the near term. The factors that have been supporting gold prices, such as a weaker dollar and retreating yields, are expected to persist in the coming months.

In addition, geopolitical tensions and ongoing concerns about inflation could provide further support for gold prices. Overall, the outlook for gold remains positive as investors seek safe haven assets amid a challenging economic environment.