Global gold prices surged towards record highs in the morning session on October 17, buoyed by falling US Treasury bond yields and despite the strengthening US dollar. The greenback reached a 10-week high as expectations faded for a significant Federal Reserve rate cut in the November meeting. Meanwhile, the European Central Bank (ECB) is anticipated to lower interest rates on Thursday.
As of the market close on October 16 in New York, spot gold rose by 12.3 USD/oz compared to the previous session’s close, equivalent to a 0.46% increase, reaching 2675.2 USD/oz, according to data from Kitco.
At around 9:00 am Vietnamese time, spot gold prices in the Asian market climbed by 8.1 USD/oz from the US close, equivalent to a 0.3% gain, trading at 2683.3 USD/oz. When converted using Vietcombank’s USD selling rate, this price corresponds to nearly VND 81.5 million per tael, an increase of VND 800,000 per tael compared to the previous day.
The sharp rise in the USD/VND exchange rate contributed to the significant increase in the converted global gold prices compared to the rise in international gold prices. Vietcombank quoted the exchange rate at the beginning of the day at 24,810 VND (buying rate) and 25,200 VND (selling rate), an increase of 80 VND on both buying and selling rates compared to the previous day.
The current global gold price is approaching the all-time high of 2685.42 USD/oz set on September 26.
The outlook for declining interest rates globally has pushed down government bond yields, including US Treasury bond yields. A low-interest-rate environment benefits gold, a non-interest-bearing asset.
According to data from CNBC, the yield on the 10-year US Treasury bond fluctuated around 4.03% on October 17, after breaching the 4.1% level last week. On Wednesday, the yield for this tenor dipped below 4.02%, the lowest in a week.
“Expectations are firming for the Fed to cut rates by 0.25 percentage points in November. Weak inflation data in Europe and the UK have raised expectations of swift rate cuts by the ECB and the Bank of England. All of these factors are pushing bond yields lower and boosting gold prices,” Peter A. Grant, a strategist at Zaner Metals, told Reuters.
“Gold prices could likely climb towards the 3,000 USD/oz level in the coming months. This price target may be achievable in Q1/2025,” Mr. Grant added.
Analysts predict that the ECB will cut interest rates by 0.25 percentage points at its meeting on Thursday. In the UK, September’s inflation rate eased more than expected to 1.7% year-over-year, boosting the likelihood of a rate cut by the Bank of England next month.
However, gold’s gains were capped by the strengthening US dollar as markets anticipated that the Fed would not repeat the 0.5 percentage point rate cut of September in the upcoming November meeting.
According to data from the FedWatch Tool on the CME platform, the market is betting on a more than 92% probability of a 0.25 percentage point rate cut by the Fed in early November and an almost 8% chance of no rate cut. Recently, with resilient economic data, the market has ruled out the possibility of a 0.5 percentage point cut.
Additionally, the outlook for further rate cuts by other central banks bodes well for the US dollar index. The index closed Wednesday’s session at 103.59 points, up nearly 0.3% from the previous session and the highest level in 10 weeks.
Data from MarketWatch showed that the US dollar has appreciated by nearly 0.5% in the past week against a basket of major currencies, including the euro, Swiss franc, Japanese yen, Canadian dollar, British pound, and Swedish krona, bringing the one-month gain to nearly 2.9%.
According to Matthew Ryan, a strategist at Ebury, a financial services firm, besides the expectation of a slower pace of Fed rate cuts, the possibility of former US President Donald Trump’s re-election in November also bodes well for the US dollar. This is because Trump’s economic policies could push inflation higher, leading to a more extended period of higher interest rates by the Fed.
“We still believe the Fed will continue to cut rates, but the pace of their rate cut cycle will be slow. As a result, the US dollar will remain supported,” Mr. Ryan wrote in an email to MarketWatch. He added that the market is increasingly betting on a Trump victory, and “this could further boost the US dollar as the general market view is that a Trump presidency would be dollar-positive.”
Looking at the medium and long-term outlook, Ole Hansen, head of commodity strategy at Saxo Bank, identified the main drivers of gold’s upward momentum as fiscal uncertainty, risk hedging demand, geopolitical tensions, de-dollarization trends, uncertainties related to the US elections, and monetary easing policies by central banks.
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