Gold prices rose on Friday and headed for a best trading week in a month, amid uncertainty surrounding data backlogs after the US government reopened after a six-week hiatus. Silver prices also increased.
Spot gold was traded over $4,200/ounce, up about 5% for the week, thereby erasing the decline of the previous session. Expectations for a new US interest rate cut stemming from a weak economic outlook continue to be a driver for precious metals that do not bring interest. Silver prices also recorded a series of increases for 5 consecutive sessions, exceeding 10% and approaching the record set last month.
The gold rally this week is expected to have been accelerated by the gamma squeeze phenomenon a technical model in which traders selling cheap options have to buy gold futures for protection. In the context of thin liquidity, any sudden price increase can trigger additional demand, creating a chain effect even if no additional material demand appears.
This weeks gold rally is in line with market developments, TD Securities strategist Daniel Ghali said in a report on Thursday. He said the recent decline in trading volume in the decentralized market makes gold prices more vulnerable. This liquidity gap could be the driving force for a gamma squeeze, which could lead to the second rally of the week, Daniel added.
Despite adjusting from a record of more than 4,380 USD/ounce last month, gold prices have increased by nearly 60% since the beginning of the year and are heading for their best annual increase since 1979. Central banks continue to increase purchases to seek a channel to preserve value and diversify reserves, while investors also see gold as a protective tool against concerns about increased fiscal in many major economies.
Gold prices continue to receive support from expectations that the US Federal Reserve (FED) will increase liquidity pumping into the financial system. This week, Roberto Perli - head of the New York FED's Open Market Account - said the US Central Bank "will not have to wait long" before buying back assets to maintain liquidity at desired levels.
Last month, FED officials announced that they would stop tightening the accounting balance sheet from December 1, in the context of increasing fluctuations in the short-term capital market.
Meanwhile, the market remains divided on whether a series of data due after Washington reopens from its longest-running closure in history will be weak enough to justify a new rate cut. Interest rate cut expectations have eased gradually this week, as many Fed officials have been cautious. Fed Fed Fed Minneapolis Chairman Neel Kashkari said he has not made a decision on the meeting next month, while Fed Chairman Cleveland, Ms. Beth Hammack, said interest rates should remain unchanged.
Exchange traders have also reduced their bet on the possibility of the FED cutting interest rates in December to about 50%, from more than 60% at the beginning of the week.
At 11:32 a.m. Singapore time, gold prices increased by 0.9% to $4,209.82/ounce. Bloomberg Dollar spot index decreased by 0.1%. Silver prices rose 2.3% to 53.50 USD/ounce, while platinum and palladium also rose simultaneously.
