Diminished expectations of interest rate hikes out of a more dovish Federal Reserve also contributed to the strength in gold. While most investors anticipate the Fed to hike rates at its meeting this week, more are convinced that a volatile market and weakening global growth could push officials to adapt a softer approach to tightening monetary policy next year.
According to CME Group data, 12.5% of investors anticipate at least three more rate hikes between now and the end of next year, compared to 38% a month ago.
A muted approach to interest rate hikes would bolster gold’s appeal, since the precious metal struggles to compete against safer yield-generating assets during periods of rising rates. Furthermore, a stronger U.S. dollar typically follows a rising rate environment, which would also weigh on USD-denominated gold, especially among foreign buyers and investors.
Nevertheless, potential gold investors should keep in mind that escalations in the trade war could bolster the USD since traders would bet on the U.S. remaining relatively better off compared to other global economies in a trade dispute. A stronger U.S. economy could also trigger a more hawkish approach from the Fed and push investors out of gold. Additionally, a U.S. stock market rebound would also steer investors back into riskier assets and away from safe-havens like gold.
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