Today, correction is going on in the currency market after the recent significant rise in the USD.
The pair XAU/USD has also corrected from the recent lows near the level of 1200.00.
Investors based their actions on expectations of the rate hike in December and continued to buy the USD. According to CME Group, last Friday probability of the monetary policy tightening in December was estimated at the level of 95%.
Last Friday, St. Louis Fed Governor James Bullard said that markets are pretty sure that the rate would be raised in December and that he also believed that it was very likely. New York Fed Governor William Dudley only added fuel to the fire, noting that inflationary expectations in the USA were high.
Last Friday the price of gold prices fell to the 9-month lows. Last Friday, closing price of December futures for gold at COMEX fell by 0.7% to the level of 1208.70 USD per Troy ounce, which was the lows since February. The index WSJ, which tracks the value of the USD against the other currencies has grown by 0.4% last Friday, which has been the rise in the 10 consecutive days.
The index ICE dollar has grown by 0.3% to 101.21 for the first time since April 8, 2003, with the closing price above 101.00. The index has demonstrated the longest period of rise since March 2015 (the rise has continued for 10 in a row). The rise in the index amounted to 4.3%. Last Thursday, Janet Yellen said positive statistics, which showed economic growth in the USA, may lead to the decision to raise interest rate in the near future.
The data released in October showed that the core inflation in the U.S. in Q3 has reached the two-year highs. After the comments of Janet Yellen, the USD has grown to the highs since 2003, while the yield on 10-year Treasury bonds has reached the highs of this year. Sales of U.S. Treasury bonds continued last Friday and the yield on 10-year bonds has increased to 2.337% from 2.278% last Thursday.
Usually the increase in the interest rate leads to the decline in gold price, as gold does not bring interest income, and cannot compete with the assets generating this income, such as government bonds.
It was expected earlier that after the election of Donald Trump President of the United States the price of gold will go up. However, instead of it investors’ risk appetite started to increase and they began to withdraw funds from the safe-haven assets, which led to the rise in the USD and the fall in the price of gold.
Expectations of the interest rate hike in the USA trigger the decline in gold price, although global political and economic instability continues.