Dear ZTraders,
When interest rates decrease or are expected to decrease, the opportunity cost of holding gold diminishes. Gold doesn't yield interest or dividends, so when interest rates are low, investors might opt for gold as a store of value since the returns on bonds and other interest-bearing assets are lower. This increased demand can drive the price of gold higher.
Conversely, when interest rates rise or are expected to rise, the opportunity cost of holding gold increases. Higher interest rates mean better returns on interest-bearing assets, making gold comparatively less attractive. As a result, the demand for gold might decrease, causing its price to fall.
The relationship between the US Dollar Index (DXY) and gold can be inverse in nature. When interest rates rise, the dollar tends to strengthen because higher rates make dollar-denominated assets more attractive to investors seeking yield. A stronger dollar can put downward pressure on gold prices because gold is priced in dollars internationally. A stronger dollar makes gold more expensive for investors holding other currencies, potentially reducing demand and causing the price of gold to drop.
Conversely, when interest rates decrease, the dollar may weaken, which could positively impact gold prices. A weaker dollar makes gold less expensive for holders of other currencies, potentially increasing demand and pushing the price of gold higher.
So, if there's an incoming pivot towards higher interest rates, it might generally lead to a stronger dollar (if other major economies are not hiking rates simultaneously), which could put downward pressure on gold prices (XAUUSD). However, market dynamics are complex and can be influenced by various other factors, so this relationship isn't always straightforward and can be impacted by geopolitical events, market sentiment, inflation expectations, and more.
Greetings,
ZTRADES
When interest rates decrease or are expected to decrease, the opportunity cost of holding gold diminishes. Gold doesn't yield interest or dividends, so when interest rates are low, investors might opt for gold as a store of value since the returns on bonds and other interest-bearing assets are lower. This increased demand can drive the price of gold higher.
Conversely, when interest rates rise or are expected to rise, the opportunity cost of holding gold increases. Higher interest rates mean better returns on interest-bearing assets, making gold comparatively less attractive. As a result, the demand for gold might decrease, causing its price to fall.
The relationship between the US Dollar Index (DXY) and gold can be inverse in nature. When interest rates rise, the dollar tends to strengthen because higher rates make dollar-denominated assets more attractive to investors seeking yield. A stronger dollar can put downward pressure on gold prices because gold is priced in dollars internationally. A stronger dollar makes gold more expensive for investors holding other currencies, potentially reducing demand and causing the price of gold to drop.
Conversely, when interest rates decrease, the dollar may weaken, which could positively impact gold prices. A weaker dollar makes gold less expensive for holders of other currencies, potentially increasing demand and pushing the price of gold higher.
So, if there's an incoming pivot towards higher interest rates, it might generally lead to a stronger dollar (if other major economies are not hiking rates simultaneously), which could put downward pressure on gold prices (XAUUSD). However, market dynamics are complex and can be influenced by various other factors, so this relationship isn't always straightforward and can be impacted by geopolitical events, market sentiment, inflation expectations, and more.
Greetings,
ZTRADES
