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Gold prices stabilized today, amid the rise of the US dollar on the one hand, and anticipation of the US Federal Reserve meeting next Wednesday. This comes after gold prices faced significant downward pressure, with expectations that central banks would start reducing stimulus programs.
The US Federal Reserve is expected to start scaling back asset purchase programs in the coming period, and the European Central Bank and Bank of Canada have both begun scaling back stimulus programs, along with the Australian Federal Reserve. The reduction of economic stimulus is caused by the large increases that seem somewhat worrisome, and although many central banks see inflation as temporary, the rise in inflation will pose a threat to the pace of economic recovery, which makes markets expect more stimulus in central banks around the world.
Gold benefits from the easing policies of central banks, and is damaged in the event that these stimulus are reduced, or the banks adopt monetary tightening policies.
Although the current central bank policies are still closer to being stimulus, the expectations of a reduction in these stimulus are the first influence on gold prices.
We should also know that the expectations of low inflation is an important factor affecting prices, and although the correlation coefficient has become a little lately when inflation rose strongly in the United States of America and Britain, reaching in America to 5.4% during this year and 3.2% in Britain last month, but Gold prices have not responded adequately to these facts, and the reason for this is that gold correlates in its performance with future inflation expectations, not current inflation levels.
With expectations of a return to the decline in inflation, the effect of inflation may remain pressure on gold prices and not support it.
Turning to the dollar, which is considered one of the most important influences on the movement of metals, the dollar rose against a basket of currencies by 0.77% over the course of this month, continuing its rise for the second month in a row, but we note that the dollar rose significantly during the past three months from levels below 90 points , to its current levels above 93 points, and the dollar’s rise is an important reason to keep gold under pressure.
Concern is currently in the financial markets! It is the most important reason for the dollar to rise, when we see that the stock markets have stumbled, and many commodities have returned to their prices to decline, here traders begin to take profits and head to cash, and as we know, the US dollar is the first monetary currency in the world, which makes any profit-taking provides support for the dollar.
The expectations of the US Federal Reserve cannot currently be neglected. These expectations are also gaining strength for the dollar. The European Central Bank, the Bank of Britain, the Bank of Japan and the Swiss National Bank may be late in raising interest rates compared to the US Federal Reserve, and even with expectations that the Fed will not start raising interest rates before 2023, or during the second half. From 2022, central banks such as the ones referred to may not start raising interest rates before late 2023, which keeps the dollar in preference.
Therefore, the dollar benefits from the expectations of future interest rate differences between the central banks in the world, and profit-taking is considered supportive of the dollar, and finally we must point out that the Fed’s decision next Wednesday may be the most important influence on the green currency in the short term, but in the long run. In the long run, the expectations of interest rate differentials between the world’s central banks will remain the dominant view.
The possibility of further rise in the dollar is already possible, and technically if we witness the dollar index above 93.50 points, this may pave the way for more bullish waves for the dollar against the basket of major currencies.
Short-term expectations may be linked to the US Federal Reserve’s decision next Wednesday, as indications of the start of reducing asset purchase programs starting next month, may have a negative impact on the precious metal, while if the Fed appears less hawkish than market expectations, then we can say that the precious metal It may start a new uptrend.