Gold ascent paused as the dollar gained strength

Gold prices rose to multi-month highs this week, touching the $2,030 per ounce level on Wednesday. Gold prices soared this week, driven by decreasing US rate hike probabilities. The recent crisis in the banking sector caused risk sentiment to plummet, raising the appeal of safe-haven assets. The rapid ascent of gold prices was checked on Wednesday though, as the dollar started gaining strength. If gold prices increase, resistance may be encountered near $2,070 per ounce, while if gold prices decline, support may be found near $1,944 per ounce. 

Gold prices have been predominantly directed by the dollar’s movement, as the competing gold typically loses appeal as an investment when the dollar rises. The dollar gained a little strength on Wednesday, but the dollar index remained below the 102 level. US Treasury yields dipped on Wednesday, with the US 10-year bond yielding approximately 3.5%.  

The Federal Reserve raised interest rates by only 25 basis points at its meeting in March, bringing the benchmark interest rate to a target range of 4.75% to 5.00%. Increases in central banks’ interest rates put pressure on gold prices since assets yielding interest become a more appealing investment compared to gold as interest rates rise. 

There is a lot of uncertainty and speculation on what the Fed is going to do at its next meeting in May as concerns about a banking sector meltdown remain high. Market odds are currently split between another 25-basis point rate hike and a complete pause in rate hikes. The Fed has already slowed the pace of rate hikes and may have to discontinue its tightening policy to prioritize financial stability over its fight against inflation.

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Written by:
Myrsini Giannouli

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