Gold climbs as dollar retreats

Gold prices rallied on Monday, climbing to $1,734 per ounce. If gold prices continue to decline, the $1,700 per ounce level may provide support, while further support may be found at the yearly low near $1,681 per ounce. Resistance may be found around 1,765 per ounce and higher up at $1,802 per ounce.

On Monday, risk sentiment was renewed on expectations of lowered US inflation. The dollar retreated and the dollar index touched the 108 level. Both the dollar and gold are safe-haven assets and their appeal weakened as markets turned towards riskier assets. The dollar had been trading in overbought territory, however, and its decline boosted demand for gold. US Treasury yields remained strong, with the US 10-year bond yielding approximately 3.3%. 

The ECB performed its largest ever rate hike last week, raising interest rates by 75 basis points, and pushing gold prices down. ECB President Christine Lagarde hinted at another steep rate hike at the EU Central Bank’s next meeting in October. On Monday, hawkish ECB rhetoric put pressure on gold prices.

Gold prices are driven down by the shift of most major Central Banks toward a tighter monetary policy to combat rising inflation rates. Assets yielding interest become a more appealing investment compared to gold as interest rates rise. 

Fed rhetoric propelled the dollar to 20-year highs in the past couple of weeks amidst mounting expectations of a steep Fed rate hike in September. Fed rhetoric remained hawkish last week, although markets perceived FOMC members’ speeches as more cautious and the dollar plummeted. Markets are currently wavering between a 50-bp and a 75-bp Fed rate hike in September.

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Written by:
Myrsini Giannouli

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