Gold price dips on rate hike expectations

Gold fell as low as $1,805 per ounce on Thursday and is currently testing the support at this level. If the price of gold decreases, further support may be found at $1,786 per ounce, while resistance may be found at around 1,870 per ounce and higher up at $1,920 per ounce.

The dollar slid on Thursday on lower-than-expected inflation data, with the dollar index falling below 104.6. US Bond yields also retreated, with the US 10-year treasury note yielding below 3% for the first time in three weeks. Real yields compete directly with gold, which is a non-interest-bearing asset, and their rise puts pressure on the price of gold. 

Even though the dollar retreated on Thursday, it is becoming clear that major Central Banks, including the Fed and the BOE, aim to tighten their fiscal policies further this year to rein in inflation. On Wednesday, Fed Chair Jerome Powell’s hawkish comments increased the chances of a steep rate hike at the Fed’s next policy meeting, reducing the appeal of gold.

Gold is supported though by the ongoing crisis between Russia and Ukraine. G7 leaders have decided to take further action against Russia by imposing an embargo on Russian gold exports. Gold exports provide revenue of tens of billions of dollars and, if the ban on Russian gold is implemented, it can boost gold prices considerably.

Stalling global economic growth gives rise to recession fears, supporting the price of gold. In the past few weeks, recession fears have mounted, as many countries show signs that their economy is slowing down. At the beginning of the year, the global economy was on the road to recovery from the effects of the pandemic. The war in Ukraine however, has set economic growth back, with prices of energy and food rising and inflation reaching peak levels, crippling economic growth. 

High inflation rates are also known to support the price of gold, which is often used as an inflation hedge, and with global inflationary pressures increasing, the gold price is boosted. High inflation, however, is a two-edged sword for the price of gold, as it increases the chances of Central Banks raising their interest rates, which reduces the appeal of gold.

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Written by:
Myrsini Giannouli

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