Quick overview

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Gold prices rose on Friday and were set for a weekly gain, supported by a weaker dollar as investors awaited additional US economic data to evaluate the likelihood of a rate cut in December following hawkish comments from Federal Reserve officials.

 

Spot gold was up 0.7 percent, reaching $4,201.70 per ounce. Throughout the week, bullion has increased by 5%. US gold futures for December delivery also rose by 0.3 percent to $4,204.90 per ounce. Meanwhile, the dollar index (DXY) was poised for its second consecutive weekly decline against other currencies, enhancing the appeal of gold to investors holding different currencies.

Gold’s strong performance this week can largely be attributed to a slight depreciation of the dollar and speculative inflows ahead of potential rate cuts by the Fed. However, the reopening of the US government has shifted market attention toward concerns about the deteriorating fiscal outlook. Market participants are beginning to suspect that delayed US macroeconomic data will reveal some economic weakness, which could support the Federal Reserve’s consideration of additional policy easing.

Economists estimate that the prolonged government shutdown may have already reduced quarterly GDP growth by between 1.5 and 2.0 percent.

This development does not assist the US dollar in recovering from a two-week low and coincides with signs of declining labor market conditions. According to a senior White House official, key economic reports for October, including data on employment and inflation, might not be released. Consequently, investors have been prompted to scale back their expectations for a rate cut in December after several Fed officials expressed caution regarding further easing.

Minneapolis Fed President Neel Kashkari noted that the economic outlook remains uncertain. However, investors seem convinced that the Fed may pursue additional monetary easing due to diminishing economic momentum resulting from the extended US government shutdown. As a result, the US dollar remains low, hovering near a two-week low reached on Thursday, which may bolster gold prices. On the other hand, bearish traders should exercise caution, as an overall weaker risk sentiment could help limit the downside for this safe-haven precious metal.