Gold prices strengthened again in trading on Friday (October 16), supported by a weaker US dollar and a decline in Treasury yields. Spot gold rose 0.4% to approximately US$4,187.66 per troy ounce, while gold futures contracts climbed 0.9% to US$4,208.50. The US Dollar Index (DXY) fell 0.3% to 101.78, putting it on track for its first weekly decline in five weeks—a shift that makes gold relatively cheaper for investors holding other currencies.
Gold’s movement is also influenced by the Federal Reserve’s interest rate policy. Higher interest rates tend to weigh on gold by increasing the opportunity cost of holding an asset that yields no return. The market currently anticipates that the Fed will maintain interest rates at its October 27–28 meeting, with expectations for a potential rate hike shifting toward the December meeting.
Uncertainty has intensified after Fed official Kevin Warsh once again refrained from providing clues regarding the future direction of interest rates. In his remarks, Warsh emphasized that he did not wish to preempt the decisions made at individual meetings. This stance forces the market to rely more heavily on upcoming economic data to gauge the Fed’s next moves.
Warsh also highlighted that inflationary pressures remain a challenge for the central bank. Recent data indicates that US inflation persists above the Fed’s 2% target, meaning the risk of further interest rate hikes has not been entirely eliminated. This factor could potentially cap gains in gold, especially if the dollar and Treasury yields begin to rise again.
Conversely, a weaker dollar serves as a positive catalyst for gold in the short term. Should Treasury yields continue to fall and expectations for interest rate hikes be pushed further out, gold could receive additional support. Nevertheless, the market must remain cautious regarding shifts in expectations, as a resurgence in inflation data could quickly reignite pressure on the precious metal.