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Gold needs dovish Fed surprise to climb significantly past $1700

Gold is still keeping its head above $1700 and could end a run of five straight weekly declines. However, spot prices are easing in the face of a resilient US dollar, as the next Fed rate hike looms.

From a technical perspective, the 14-day relative strength index has resurfaced above the 30 mark. This recovery from oversold conditions appears to have also warranted gold’s presence back above $1700, although spot prices appear to have been resisted around the $1720 end-September lows.

Gold needs dovish Fed surprise to climb significantly past $1700

Although markets have pared back the odds of a supersized 100-basis point Fed rate hike at next week’s policy meeting, the now fully-priced-in 75bps hike is still aggressive enough to limit gold’s recovery for the near term.

As long as the Fed persists with its “pedal to the metal” approach in combatting multi-decade high inflation, gold prices are set to relinquish the prospects of significant upside, especially if the still-resilient US economy continues paving the way for US interest rates to move even higher.

However, clearer signs of a US recession that cap the Fed’s rate-hiking ambitions may in turn set a stronger foundation from which gold prices may then recover.

 

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