Gold Holds Gains as Dollar Weakens and Fed Rate Hike Delayed

Gold has extended a four‑day rally, buoyed by a sustained run that began in mid‑September and reinforced by expectations that the U.S. Federal Reserve will postpone any rate hikes until the end of the year. Analysts now see further upside for the yellow metal, citing physical demand that should support the interest‑rate‑driven rally and a softening U.S. dollar.

Spot gold was flat on Thursday, trading just below its three‑and‑a‑half‑month high of $1,184. It fell from $1,190 the previous session, when it had surged 1.4 % after weak U.S. and Chinese data pushed expectations toward a 2016 Fed rate increase.

The dollar has slipped to near seven‑week lows against a basket of currencies, with the euro rising 2.3 % against the greenback in the past fortnight to around $1.14. The euro’s recent climb follows a sharp decline earlier in the year, when it fell to a 12‑year low of $1.056 in March after the ECB launched a government‑bond buying programme.

"Gold’s price is largely driven by expectations of the U.S. dollar and the timing of the next Fed hike," said BMO Capital Markets analyst Jessica Fung. "With the market pricing in a potential March 2016 rate increase, we anticipate continued upward pressure on gold, supported by safe‑haven demand.

"China’s consumption impact on gold remains muted at present; the focus is on Fed expectations," she added.

UBS data released last week shows a gradual rise in gold positioning, with key physical markets poised to influence global supply and demand dynamics. While ETF holdings of precious metals have slipped over the past month—except for gold—retail demand for silver and gold coins has surged, according to Capital Economics.

Credit Agricole’s G10 FX research head Valentin Marinov noted that a potential spike in risk aversion could further lift gold prices, providing additional support for the metal’s rally.