Dollar downtrend fuels gold to a 6-month peak as Fed rate increases stalls

As the US dollar's slide deepens, experts are linking the trend to a growing consensus that the Federal Reserve may have reached the end of its rate-hiking cycle. The dollar's descent has been notably marked by the DXY dollar index dropping below its 200-day moving average—a traditionally important technical benchmark.

Analysts, including ING's Chris Turner, have pointed out that the DXY's approximate 3.5% fall from its October peak is a sign that the markets are adjusting to the possibility of a pause in the Fed's tightening regime. This has prompted investors to shift their focus back to various asset classes, including bonds, equities, and emerging markets.

The dollar index edged down 0.1% overnight against its rivals, not far from a more than two-month low level touched last week, making gold less expensive for other currency holders. 

Concurrently, the British Pound has climbed to a 12-week high against the dollar, emphasizing the currency's weakening stance. This weakening dollar is also providing a backdrop for gold's impressive performance, pushing the precious metal to a six-month high. 

New York gold futures have climbed 0.4% to $2,012 per troy ounce, a level not seen since May. The impact on other commodities has been mixed, with copper prices declining slightly while aluminium has seen modest gains.

With a 12-month target set at $2,050 an ounce, experts highlight that the trajectory of gold prices is likely to be influenced by U.S. real rates and the dollar's movements. Silver prices also saw an uptick of 1.4%, reaching $24.65 an ounce, while platinum experienced a modest increase of 0.2% to $932.81. Additionally, palladium prices edged up by 0.6%, trading at $1,075.01 an ounce.

Lower interest rates diminish the opportunity cost of holding non-interest-bearing gold. Traders widely expect the Fed to leave rates unchanged in December while pricing in about a 60% chance of a rate cut in May next year, according to CME’s FedWatch Tool.