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U.S. Dollar Decline Sparks Bullish Trends in Precious Metals

  • The recent dovish stance of the Fed has led to expectations of deeper interest rate cuts, affecting the US Dollar Index negatively.
  • Gold prices have surged, even breaching $2100/oz, due to the weakening dollar and global economic uncertainties.
  • The US Dollar Index's decline below $103 suggests a bullish market environment for stocks and precious metals, with potential further declines towards the $100 support level.

Via Metal Miner

This month, prices for stock indices have continued to see gains week over week as we roll into the new year. Last week’s dovish tone from the Fed fueled bets from investors on deeper and faster interest rate cuts going into 2024, which could continue to drive indices up. How will this impact the US dollar index?

The problem remains, however, that this provides little insight into the fluctuating US Dollar Index and what it might mean for markets next year. Indeed, a dovish Fed, combined with declining volatility, tightened investments, and falling oil prices, may boost GDP growth in the new quarter. However, given that this will continue to boost demand, it may also fuel inflation. If that happens, it will swing the Fed from a dovish approach to a more hawkish outlook.

After reaching long-term resistance in October 2023, the US Dollar Index continues to demonstrate bearish patterns and trends within its month-over-month price action. Indeed, since October, price action has declined sharply. This formed breakdown patterns in the index, driving markets for precious metals and stocks upward with bullish strength. For instance, prices for the Dollar Index are currently trading below $103. This puts the index in a bearish trend, especially if we consider the newly formed lower high witnessed this month.

This recent price action anticipates that stock indices will continue upward and gold prices will rally and trade above $2000/oz. However, prices may reverse as the index reaches the $100 support level, which acts as a significant long-term range support. The US Dollar Index will need to trade below the $100 support zone and continue further downward to establish a new long-term trend. For the time being, it remains uncertain whether or not this will happen.

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The US Dollar Index, Gold Prices, and 2024

In the short term, multiple factors continue to drive index prices downward. However, prices have also traded within range since the September ‘22 high and the July ‘23 low. This recent price action has also influenced new trends among other assets. For instance, the falling dollar has acted as a driver for precious metals, supporting their recent rally this month.

Gold even established a new all-time high, with prices breaching $2100/oz, before quickly retracing below. As of Tuesday, prices seemed to be priming for another push to the upside. However, since gold and silver prices are still historically high, a retracement to the downside should not be ruled out.

Meanwhile, investors continue to flow into safe-haven assets amid the ongoing conflict in the Middle East. This also helped drive gold prices up into their new all-time high price range. From a long-term outlook, investors will continue to seek these assets as global conflict introduces more risk to the markets. Prices will continue to seek bullish trends within precious metals while prices for the index push below $103. This indicates a bullish environment for stocks and precious metals like gold and silver.

Global Economic Fluctuations Drive Up Demand, Impacting US Dollar Index

Overall, prices for different assets, such as stock indices and precious metals like gold, continue to see consistent gains week over week. However, when there are fluctuations among the US Dollar Index and global economies, it can significantly influence gold trends and volatility. Indeed, this is precisely what drove prices for the precious metal up this past month.

While the stock market and gold continue to trade in a volatile environment, the dollar index will see the impact. Most likely, the downtrend will push it below $103 towards the $100 support level. Meanwhile, a declining index will continue to show upward momentum across other assets against the dollar, which could help drive prices further up into the end of the year.

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By Jimmy Chiguil

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Leave a comment
  • Mamdouh Salameh on December 30 2023 said:
    The dollar is bound to be devalued sooner or later because of threats from many factors.

    A widening US fiscal deficit, a steeply-rising national debt, a global de-dollarization drive and a stiff competition from the petro-yuan with 20 percent of global oil being traded this year in currencies other than the petrodollar could combined lead to a devaluation of the dollar.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

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