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Rising Gold Prices Seem to Respond to the Fed’s Easing Policy


The U.S. dollar index continued to fall on Thursday (December 16), as the market combed a series of central bank policy statements to find clues about future differences in interest rates and economic support; the U.S. dollar weakened against risky currencies, and was evaded against yen and Swiss francs. The risk currency also fell. Aided by the sharp drop in the US dollar after the Federal Reserve meeting, spot gold rose more than 1%, setting a new high since November 30 to US$1,79.71 per ounce. Oil prices rose for two consecutive days, and U.S. oil rose 1.54% in late trading. The record-setting hidden demand in the United States, the decline in crude oil inventories and the optimistic economic forecasts of the Federal Reserve (Federal Reserve/FED) overwhelmed concerns that the Omicron variant would harm global consumption. 

On Friday (December 17), international gold prices climbed, and the weekly line is expected to close again after a lapse of four weeks. After the Fed decided to accelerate the withdrawal of the ultra-loose stimulus measures during the epidemic period in response to the growing inflation risk, the US dollar bulls fulfilled their expectations. Profit taking. The Bank of England’s unexpected rate hike boosted the pound and was also negative for the dollar.

IG Markets analyst Kyle Rodda said: "To a large extent, gold seems to have responded to the Fed's decision to maintain a relatively loose policy. Inflation conditions continue to push investors into the gold market, using gold as an important hedging tool." The market seems to be inclined to push the price of gold towards $1,830, which may be a key level to watch. The Fed decided this week to accelerate the reduction of bond purchases and announce a more positive outlook for interest rates, paving the way for three rate hikes before the end of 2022, as a response to full employment and a surge in inflation.

Britain became the first G7 economy to raise interest rates since the outbreak of the new crown epidemic. The bank said that the inflation rate in April next year may reach 6%, three times its target level. Action must be taken now, even if the Omi Keron variant swept Britain. This is the second time the Bank of England has surprised investors in six weeks. The British pound against the U.S. dollar closed up nearly 0.5% overnight. Marc Chandler, chief market strategist at Bannockburn Global Forex, said: "The volatility suggests that some traders have begun to liquidate short positions in the pound." However, the European Central Bank has only slightly curtailed its stimulus measures and promised to reduce borrowing costs next year and even restart emergency economic support. Measures open the door. Inflation is particularly severe in the United States and the United Kingdom, but has a smaller impact in Europe.

The Bank of Japan decided on Friday to reduce its corporate bond purchases to pre-COVID-19 levels. However, it is widely expected that Japan will reduce its economic assistance program much more slowly than many other countries, because the consumer price inflation rate is still far below its 2% target.

Risk Warning: The above content is for reference only, and does not represent JRFX’s position. JRFX does not assume any form of loss caused by any trading carried out in accordance with this article. Please consult your financial planner for your investment portfolios and manage your own risk.

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