March 26, 2023
US Dollar value and Fed policies, the main gold price drivers
Hot Forex Review

US Dollar value and Fed policies, the main gold price drivers

Chinese economic growth is one of the main engines of world economic growth. China’s industrial activities from January till November fell more than expected, reducing China’s GDP to just 3% growth in the first three quarters and Business confidence to its lowest level since January 2013. However, analysts expect brighter economic prospects after a U-turn in COVID policy in the longer term. A better outlook for the global economy means less demand for gold safe haven, but it will also reduce the USD buyers. Therefore we expect to see a weaker US dollar in the mid and long term. In this condition, the tendency will favor dollar bears and gold bulls more.

The gold market is looking up.

On the other side, inflation, as Fed, expecting supposed to fall more, which means fewer hawkish policies. However, the Fed can hold its policies with higher rates for a long time without raising them. While with less hawkish policies US dollar can fall and gold rise, holding the rates at higher levels for a longer time will increase the recession risks, which means more demand for the US dollar and pressure on gold. However, since the market risk will increase, gold’s safe-haven demand also will rise. Therefore possible bears should have less strength.

From the technical point of view, the price rises above 20-DMA ($1,721) and is trying to hold the psychological level of 1,800 US dollars. Above 20-DMA, the trend remains bullish. Conversely, breaching under $ 1,721 can change the trend toward lower levels. In short, the general conditions are still in favor of gold bulls.

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