Gold Prices Benefiting From Weaker U.S. Dollar…For Now

New York (Nov 8)  Gold prices are benefiting from a weaker U.S. dollar, pushing to their highest level in nearly three weeks, although one international bank says the trend might not last.

Currency analysts at BNP Paribas said that they expect that U.S. dollar strength, which picked up in October, has further room to run, at least for the next four months. They noted that the U.S. dollar has seen a strong rebound after a six-month lull.

December gold futures are hovering near their highest level in three weeks, last trading at $1,286.30 an ounce. At the same time, the U.S. dollar index is relatively unchanged on the day at 94.87.

“We expect gains to extend in November and have notched our short-term forecasts for key pairs a bit higher, targeting EURUSD at $1.14 and USDJPY at 116 [yen] over a one-month horizon,” the analysts said in a report Wednesday. “We expect the USD to remain well supported through the end of Q1 2018. Beyond that, with U.S. rates likely beginning to top out and policy tightening getting under way elsewhere in the G10, it makes sense to look for a resumption to the downside for USD.”

The French bank is expecting to see three interest-rate hikes in 2018, which is slightly more hawkish than market expectations. CME 30-day Fed fund futures are pricing in at least one rate hike with the potential for a second one by September 2018.

While gold prices are testing key resistance within its current trading range, analysts warn that the precious metal still has a little more work to regain its bullish momentum. Analysts say that gold needs to break and hold above $1,300 an ounce to attract new capital.

Wednesday, gold is benefiting from a lull in the U.S. dollar as markets see uncertainty surrounding Congress’s proposed tax-reform legislation. The Senate is currently looking at postponing a cut to corporate tax rates until 2019.

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