The markets seem worried about a possible crash, which is, among other things, evidenced by a reversal of the downtrend in gold prices. Namely, after the Bank of England made some drastic moves, the US dollar’s momentous rise was slightly reversed, taking gold prices higher.
With the pullback in the dollar, the safe-haven appeal of gold seems to have returned to markets, as market participants are now looking for ways to hedge their bets against a possible recession scenario towards the end of this year.
At the time of writing, the yellow metal is trading at $1,649.3, slightly lower compared to the September 28 session.
In his daily commentary on gold, Jim Wyckoff, senior analyst at Kitco.com, said that investors are keeping an eye on the currency markets.
“Traders and investors are keeping a very close eye on the currency markets. Gold prices did drop to a nearly 2.5-year low overnight. October gold was last up $7.00 at $1,633.80, and December silver was down $0.10 at $18.23.”
Meanwhile, the ICE US Dollar Index (USDX), an index that compares the strength of the dollar against a basket of other currencies, dropped by 0.3%; yet, it is still holding to gains seen over the week, this month, and the entire quarter.
With major economies scrambling to stem and reverse the erratic market action, gold might become the safe haven of old, giving an alternative investment to risk assets, which have been down for most of 2022.
However, the US dollar has taken over as a haven play in 2022, mostly due to the strength of its economy, compared to emerging markets. A further rise in the US dollar could sidetrack gold’s potential rise, but other macro factors could play a major role.
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