The US dollar declined due to market bets on the Federal Reserve completing interest rate hikes, while gold prices bottomed out and rebounded, waiting for Fed minutes

Gold prices have bottomed out and rebounded, initially under pressure due to the rebound in US Treasury yields. However, US Treasury yields have since fallen, and recent US economic data has boosted bets on the Fed's completion of interest rate hikes. The US dollar continues its decline, providing support for gold prices. In addition, the market continues to evaluate last week's inflation data in the United States and is seeking clues in the November meeting minutes of the Federal Open Market Committee released on Wednesday. Spot gold fell 0.16% on Monday and closed at $1977.64 per ounce.

Last week, due to the weak October Consumer Price Index (CPI) data in the United States, there was increased downward pressure on US yields and the US dollar, leading to an increase in gold prices. On Friday, the yield of 10-year treasury bond fell to 4.38% from the peak of 5.02% at the end of October, the lowest level since the end of September. Similarly, the 2-year and 5-year interest rates have fallen to their lowest points since September, at 4.80% and 4.35%, respectively.

On Monday, these interest rates rebounded to 4.90%, 4.47%, and 4.46%, which seems to have put pressure on this unprofitable metal. The question now is whether one month of positive inflation data is enough to end the Federal Reserve's tightening cycle. Any new evidence of rising inflation or economic overheating could exacerbate hawkish bets on the Federal Reserve. The change in expectations of the Federal Reserve's future policy actions led to the yield of benchmark 10-year US treasury bond bonds falling to a two month low on Friday, benefiting the non yielding metals.

Economists at Daoming Securities have stated that, "The door to a downward trend in gold prices may finally be open, as our advanced position analysis indicates that the upward flow of funds has reached its peak. We now estimate that if there is no decisive breakthrough above $2000/ounce, trend followers' purchasing activity may gradually stop. The significant deterioration of US data may bring increasing resistance to bears, but the scope of tactical downturns is still expanding."

Last week's US Consumer Price Index report showed that consumer inflation is cooling faster than expected, while last Thursday's US initial jobless claims indicated that the labor market is cooling down. The market seems to be confident that the Federal Reserve will maintain interest rates unchanged at its policy meeting in December 2023 and expects to cut rates by nearly 100 basis points by the end of 2024.

The US dollar is hovering near its lowest level since September and is seen as another factor providing support for gold prices before Tuesday's FOMC meeting minutes.

The escalation of the Israeli Palestinian conflict has raised concerns about its potential impact on the world economy, which could in the worst case lead to a recession.

As widely expected, the People's Bank of China has maintained loan market quoted interest rates near historic lows and injected approximately 80 billion yuan of liquidity into the market. Chinese regulatory authorities have vowed to provide more policy support for the struggling real estate industry, boost investor confidence, and limit safe haven currency gold.

Dao Ming Securities analyst Ghali expects gold prices to start hitting a series of new historical highs at this time. He also stated that even before the upcoming breakthrough, the current strength of gold indicates that central bank purchases have led to structural changes in the market.

Ghali said, "The interesting thing about the gold market is that the interest rate hikes we see are often quite unfavorable to gold prices, but if you narrow down, today's gold prices are still hovering near historical highs." "The deterioration of this relationship actually indicates that the demand from central banks is very high, and this demand distorts this relationship because mainly investors tend to focus on interest rates, and interest rates will penetrate capital flowing into gold.".