Gold Hits One-Month High as Dollar Slide Brings in Fresh Buying
Comment of the Day

November 08 2022

Commentary by Eoin Treacy

Gold Hits One-Month High as Dollar Slide Brings in Fresh Buying

This article from Bloomberg may be of interest to subscribers. Here is a section:

“A million ounces of gold was bought in under two minutes moving the price nearly a percent - this suggests fresh buying,” said Tai Wong, a senior trader at Heraeus Precious Metals in New York. “Gold holding above the 50-day moving average for the first time since August added to the positive sentiment.”

Aggressive Federal Reserve monetary tightening aimed at cooling inflation has weighed on metal prices this year by driving up the greenback and hurting demand prospects. Higher interest rates tend to diminish the investor appeal of commodities, which bear no interest.

Traders are eyeing the upcoming US inflation reading due Thursday, after the core consumer price index rose more than forecast to a 40-year high in September. Another hot print could further curb hopes of an impending slowdown in the Fed’s monetary tightening.

Eoin Treacy's view

It is often said that the only hard fundamental in currency markets is the interest rate differential. In raw terms, the interest rate differential between the USA and the Eurozone exceeded 250 basis points in the late 1990s. Since then, spread peaked at 250 basis points in 2006 and 2019 and is now testing the 200 basis point level. It is reasonable to question whether it is likely move much beyond the current band in this cycle as the ECB plays catch up with tightening policy.

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