Gold prices moved sharply higher on Thursday as falling oil prices and a weaker US dollar supported demand for the precious metal. Investors were also assessing the Federal Reserve’s first interest-rate hike in three years.
Spot gold rose 2.4% to $4,366.93 per ounce at 04:56 ET, or 08:56 GMT. Meanwhile, US gold futures gained 0.5% to trade around $4,406.75 per ounce.
Gold Prices Rise as Oil Retreats
Lower oil prices provided additional support for gold during Thursday’s session.
Analysts have recently highlighted an increasingly inverse relationship between gold and crude oil. Higher energy prices can increase inflationary pressures and strengthen expectations for tighter monetary policy.
Rising interest rates can weigh on gold because the precious metal does not provide a yield. This can make interest-bearing assets more attractive to investors.
However, gold traditionally also benefits from its role as a hedge against inflation and economic uncertainty.
Oil Prices Ease on Supply Expectations
Crude oil prices moved lower after reports suggested that Saudi Arabia was taking steps to ease supply constraints.
However, ongoing tensions in the Middle East continued to support energy prices, with crude remaining above $100 per barrel.
Oil therefore remains an important factor for inflation expectations and the wider outlook for monetary policy.
Weaker US Dollar Supports Gold Demand
Gold also benefited from a pullback in the US dollar.
The US Dollar Index, which measures the greenback against a basket of major currencies, slipped from a seven-week high.
A weaker dollar typically makes gold cheaper for buyers using other currencies. As a result, declining dollar strength can increase international demand for bullion.
Federal Reserve Rate Hike Remains in Focus
Investors continued to digest the Federal Reserve’s latest monetary policy decision.
Fed policymakers unanimously raised interest rates by 25 basis points on Wednesday. The move marked the central bank’s first rate increase in three years.
Federal Reserve Chair Kevin Warsh also emphasized the central bank’s commitment to controlling inflation.
According to CME FedWatch data, markets were pricing in roughly a 51% probability of another rate increase at the Fed’s next meeting in October.
Treasury Yields Fall After Fed Decision
US Treasury yields moved lower across the yield curve following the Federal Reserve announcement.
Falling bond yields can provide support for gold because they reduce the opportunity cost of holding non-yielding assets.
Investors also viewed the Fed’s decision as a signal that policymakers remained focused on controlling inflation despite broader pressure for lower borrowing costs.
Gold Traders Watch Dollar, Oil and Fed Policy
Gold prices remain sensitive to several competing market forces.
A softer US dollar and declining Treasury yields are currently providing support for bullion. Lower oil prices may also ease concerns about persistent inflation.
However, expectations for further Federal Reserve rate hikes could limit upside momentum if interest rates remain elevated for longer.
Traders will therefore continue to monitor the US dollar, Treasury yields, oil prices and upcoming economic data for clues about the next major move in gold.
