The US Dollar is facing challenges after recent losses against major currencies. Market watchers are looking forward to the US GDP data for the third quarter, which is expected to show a 3.2% growth, down from 3.8% in the last quarter. The USD Index has dropped about 0.5%. Other key economic indicators, including Durable Goods Orders, Industrial Production, and Consumer Confidence, will also be assessed before the holiday slowdown. Gold has hit nearly $4,500, reaching a record high due to geopolitical tensions, with a daily increase of 0.7%. Silver has also peaked at $70, pulling back slightly but still showing a remarkable 23% gain for December. The US Dollar’s weakness is evident, especially against the New Zealand Dollar. In contrast, both EUR/USD and GBP/USD are rising, while USD/JPY continues to struggle despite comments from the Japanese Prime Minister.

Gold As A Safe Haven

Gold is seen as a safe-haven asset during uncertain times, moving inversely to the US Dollar and Treasuries. Central banks from China, India, and Turkey hold large amounts of gold. Silver is also valuable for industrial use and as a hedge, with its prices affected by industrial demand and its relationship with gold prices. Given the US Dollar’s significant weakness, caution is advised for those holding long dollar positions. Trading volumes are expected to decrease ahead of the holidays, which can lead to sudden market shifts. The upcoming US GDP data will be crucial; a result below the anticipated 3.2% could further weaken the dollar. Investors are clearly moving away from the dollar, opting for precious metals instead. This trend has developed over years, with central banks—especially in emerging markets—buying large quantities of gold. In 2023, they added over 1,000 tonnes, nearing a record pace, which has significantly contributed to gold’s rising prices. Silver’s impressive 23% jump this month isn’t solely due to gold; strong industrial demand plays a vital role. Reports from 2024 indicated that institutions like the Silver Institute expected structural supply deficits due to silver’s use in solar panels and electric vehicles. This strong demand, along with its safe-haven status, fuels silver’s rapid rise.

The Dollar’s Long-Term Weakness

The long-term weakness of the dollar is a growing concern, especially since the US national debt exceeded $34 trillion in early 2024, damaging global confidence. This situation has made dollar-priced assets like gold more appealing as a store of value. We are now witnessing the effects of these ongoing fiscal challenges in the currency markets. For derivative traders, this environment supports strategies that benefit from rising precious metal prices and a weaker dollar. Buying call options on XAU/USD and XAG/USD allows participation in this positive trend while managing risk, which is important with the approaching holiday market slowdown. These record prices signal strong momentum that might continue into the new year. On the currency side, it’s wise to consider strategies that short the US dollar, particularly against commodity currencies like the New Zealand Dollar. The USD Index clearly shows a downward trend toward 98.00, making put options or short futures on the index a straightforward way to capitalize on this view. The dollar seems likely to continue its downward path as we head into January. Create your live VT Markets account and start trading now.

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