Gold prices rose in European trade on Monday for the third straight day, almost hitting a two-week high as the dollar slows down against a basket of major rivals.

The gains come ahead of the Federal Reserve's policy meeting this week, expected to pause interest rate hikes in order to assess US economic conditions. 

The Federal Reserve's policy decisions and statements, in addition to Fed Chair Jerome Powell's statements afterwards will provide clues on the likely path ahead for policies, especially in November.

Gold Prices Today

Gold prices rose 0.35% to $1,930 an ounce, with a session-low at $1,922, after rising 0.7% on Thursday, the second profit in a row away from a three-week low at $1,901, as the dollar stalls.

Gold prices rose 0.25% last week, the third weekly profit in a month, as the battle of major central banks with inflation approaches an end, with the European Central Bank hinting that interest rates have peeked out. 

The Dollar

The dollar index fell 0.1% on Monday, extending losses for the second session off six-month highs against a basket of major rivals.

Dollar declined ahead of the Federal Reserve's policy meeting later this week, expected to end with no change in policies. 

The Fed

The Federal Reserve is holding its two-day policy meeting tomorrow, widely expected to end with maintaining interest rates unchanged at 5.5%, the highest in 22 years.

US Rates 

Current pricing for a 0.25% Fed interest rate hike this week stands at 1%, while pricing for a 0.25% interest rate hike at  the November meeting stands at 28%. 

Estimates

Analysts believe that gold prices are carrying strong momentum as global central bank pull back from their policy tightening marathons.

Future US and European data especially on consumer prices and retail sales will offer more clarity on this issue. 

Chinese Gold Prices

Gold prices in China hit record highs last week as consumers buy up the safe haven to compensate the declining yuan values. 

The SPDR

Gold holdings at the SPDR Gold Trust rose 0.57 tonnes on Friday to a total of 880.27 tonnes, away from January 2020 lows at 879.7 tonnes. 

Euro rose in European trade on Monday against a basket of major rivals, extending recovery for the second day off six-month lows against dollar.

The gains remain rather limited amid grim outlook for the euro's future following the recent European Central Bank's meeting and the hints of reaching neutral interest rates, which threatens to widen the interest rate gap between the US and Europe. 

EUR/USD rose 0.2% to 1.0677, with a session-low at 1.0658, after rising 0.2% on Friday, the first profit in three days, off six-month lows at 1.0632. 

Euro lost 0.4% last week, the ninth weekly loss in a row and the longest such streak of weekly losses in euro's history. 

ECB

Unexpectedly, the European Central Bank raised interest rates last week for the tenth meeting in a row, carrying on its battle against inflation.

The ECB raised interest rates by 25 basis points to 4.50%, the highest since 2001.

The ECB said at its policy press release that despite slowing inflation, it'll remain high for an extended duration.

The central bank asserted that upcoming decisions will rely heavily on data to decide the appropriate level and duration of high interest rates.

ECB President Christine Lagarde said that ECB members believes the current rates will help control inflation and bring it back to 2%.

The ECB will continue to rely on data to determine the duration of the currently high interest rates.

The ECB cut growth forecasts this year from 0.9% to 0.7%, but expects the euro zone economy to rebound in the second half of the year.

Interest Rate Gap

The current interest rate gap between the US and the euro zone currently stands at 100 basis points, the lowest since May 2022 and is expected to remain so until November, when the ECB is expected to maintain interest rates unchanged.

However there's a nearly 50% chance the Federal Reserve will raise interest rates by 25 basis points, in turn widening the gap with European policies. 

US stock indices declined on Friday following a spate of data and amid concerns about strikes in the US automotive sector.

Earlier US data showed import prices rose 0.5% in August after a 0.1% rise in July, the largest such increase since May 2022, as fuel prices rose while import prices rose 1.3% in August. 

US industrial production rose 0.4% in August m/m, slowing down from the previous reading but still beating estimates.

Thousands of workers in the automotive sectors started a strike in three major factories owned by Ford, General Motors, and Stellantis after negotiations failed between unions and the companies to rework labor contracts. 

On trading, Dow Jones fell 0.6%, or 198 points as of 16:13 GMT to 34,708, while S&P 500 fell 0.9%, or 41 points to 4463, as NASDAQ slumped 1.3%, or 180 points to 13,746. 

Palladium prices barely rose on Friday as the dollar lost ground against most major rivals, following fresh Chinese stimulus measures after the People's Bank of China cut reserve requirements for local banks to boost the economy. 

Such a step did help to improve the prices of many metals and commodities, with traders now awaiting crucial Chinese industrial production and retail sales data later.

Continuous concerns about supply shortages, and expectations that the Federal Reserve will maintain interest rates unchanged helped boost oil prices in particular this week. 

Higher interest rates raise costs of borrowing for consumers and corporations and weigh on growth and metals demand.

Otherwise, the dollar index fell 0.1% as of 15:51 GMT to 105.2, with a session-high at 105.4, and a low at 105.08. 

Palladium futures due in December rose 0.3% to $1251.5 an ounce as of 15:52 GMT.

Palladium is used extensively in the automotive and electronics industries, with particular use in reducing exhaust fumes.