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Gold shines amid weak dollar, crypto selloff

Safe haven appeal boosts appetite for yellow metal

The US dollar has witnessed a massive selloff in recent weeks as the US Federal Reserve signals easing of its hitherto hawkish stance on rate hikes. Stock markets have also rallied, with investors hope for a gradual return to the easy money regime that has defined equity markets for the last decade.

Friday’s continuing rally on Wall Street, on the back of Thursday’s mega spike, also pushed the dollar to its biggest two-day drop in 13 years.

While the good news on the rate front cheered markets, the cryptocurrency market went into a tizzy as FTX, a major crypto exchange, declared bankruptcy on Friday. Major selloffs have ensued, with some exchanges freezing transactions as well.

This double whammy – from a cheaper dollar and the crypto storm – has once again reignited the appetite for gold. Both as a safe haven shield from the uncertainties of the crypto market and to gain from the cheaper greenback, gold prices rose to a near three-month high on Friday. On Friday, gold closed at $1,765.10, a gain of 0.85 per cent.

“The beneficiary of the US dollar selloff on Friday and the crypto selloff on Tuesday was gold, as traders parked funds in the safe-haven asset. Gold had been moving lower in an orderly channel since March, after testing the all-time highs of 2,075.11 in August 2020. The precious metal pulled back to the 50 per cent   retracement level from the lows of August 2018 to the highs of August 2020 near 1617.68. Gold tried to break the support level three separate times since September 28, failing each time. The last time price tested that level was November 3, the day before the US dollar meltdown occurred. Gold is currently up nearly $100 since then and is testing the 100-day moving average at $1,716.21,” according to a research report by Forex.com.

Analysts believe that the metal may face horizontal resistance near $1,735 level. “Above there, gold can move to $1,807.91, the highs of August 25,” the Forex.com report said.

However, there are indications that gold prices may have gone too high too soon. “First support is at Monday’s highs of $1,682.13. Below there, price can fall to the lows of November 3 at $1,616.71, then the top downward sloping trendline of the recent channel near 1590,” the report predicted.

Will gold continue to move higher?

It may depend on the selloff in the US dollar. “US CPI [consumer price index] is due on Thursday. If it is higher than expected, the USD may go bid and gold could sell off (and vice a versa). In addition, if we are seeing the demise of cryptocurrencies, traders will be looking for the safe haven of Gold, which will continue to push the precious metal higher,” said Joseph Perry, market analyst at Forex.com, the author of the report.