Gold price falls as dollar, yields rise

Gold price slipped on Monday, as rising real yields reduced the demand for gold. The gold prices plummeted, falling from $1,958 to $1,916 per ounce.  If the price of gold decreases, support may be found near 1,877 per ounce, while resistance may be found at around $2,000 per ounce. The price of gold is supported by global inflationary pressures, as well as by the conflict in Ukraine.

The dollar climbed on Monday, with the dollar index rising to 99.4, boosted by hawkish Fed rhetoric, putting pressure on the price of gold. Both the dollar and gold are considered safe-haven assets and have been supported by the crisis in Ukraine. The war in Ukraine has triggered a risk-aversion sentiment, driving investors towards safe-haven assets and propelling the price of gold to $2,050 per ounce at the beginning of the month. Diplomatic talks between Russia and Ukraine continue, sparking hopes of a de-escalation of the conflict although so far, a solution does not seem near and gold price benefits from the ongoing crisis.

Global yields are also on the rise, curtailing the demand for gold. Real yields climbed across the US Treasury chest last week, boosted by reports of a shift in the Fed’s fiscal policy towards a more hawkish direction, putting downward pressure on the price of gold and remaining high on Monday. The 10-year Treasury yields rose to a two-year high of 2.5% on Friday, as investors anticipate a more aggressively hawkish Fed policy and remained above 2.4% on Monday. Real yields compete directly with gold, which is a non-interest-bearing asset, and their rise puts pressure on the price of gold.

Sanctions against Russia have been driving commodities up, especially energy-related commodities, contributing to rising inflation. The price of gold benefits from rising inflation, since it is often used as an inflation hedge. The effect of rising inflation on gold seems to be temporary though. Global inflationary pressures, increased by the war in Ukraine, are pushing major Central Banks toward a more hawkish fiscal policy. The Federal Reserve raised its benchmark interest rate by 25 base points in its latest policy meeting, bringing its benchmark interest rate to 0.50% and the BOE similarly raised its benchmark interest rate by 25 base points, to 0.75%. 

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Written by:
Myrsini Giannouli

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