Why the Price of Gold Could Get a Boost Thanks to the Fed
Peter KrauthThe price of gold just managed to tread water last week, but a weakening dollar could give gold a fresh boost in December.
The metal has been fighting a robust U.S. dollar, supported by anticipated Fed rate hikes and trade tensions between major economies, specifically the United States and China.
Still, gold prices held up particularly well. Consider that on Nov. 12, when the DXY touched 97.5, gold closed way down at $1,200.
And after the last two weeks of dollar gains pulling the DXY back up to 97.25, gold has clawed its way to $1,215.
A lot of the recent dollar strength is likely a buildup of anticipation for the G-20 summit last week combined with the expected December Fed rate hike.
But now that U.S.-China trade tensions have cooled off after the summit and the Fed all but confirmed a December rate hike, the wind might be coming out of the dollar's sails.
And that could be very positive for gold prices in 2019…
Why This Is a Positive News Cycle for the Price of Gold
Gold prices dipped early last week, only to recuperate as November drew to a close.
That allowed the precious metal to post a second consecutive monthly gain.
The U.S. Dollar Index (DXY) starting climbing on Monday (Nov. 26), going from 96.8 to 97.05. But Tuesday's (Nov. 27) further rise to 97.35 came as Fed Vice Chair Richard Clarida said the Fed should continue to raise rates gradually while monitoring new economic data.
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That tanked gold from $1,224 to $1,211 that morning before it recovered to close at $1,214.
Then on Wednesday (Nov. 28), Fed Chair Powell said, "Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy." That was interpreted as more dovish than back in early October. At the time, Powell said rates were a long way from neutral. In response, gold popped to recuperate to $1,225.
You can see just how strongly traders reacted to Powell's Wednesday comments in the DXY chart here…
Thursday (Nov. 29) would see gold consolidate near the $1,225 level in the morning, then trail off slightly to close at $1,224 as the dollar index stayed softer, near 96.8.
And finally, to end the week, the dollar strengthened once again as the market eyed the weekend's G-20 meeting. That pushed gold down to $1,217 by 9 a.m. before it recuperated to close at $1,222.
But now that the G-20 meeting ended with a new tariff crisis safely averted, the price of gold could see a nice boost as we close out the year.
Here's exactly where I see gold prices heading before the end of the year…