Gold prices surged above $1,840 per ounce early on Monday, but pared their gains later in the day, falling to $1,820 per ounce, as increased rate hike expectations, outweighed recession fears. If the price of gold decreases, support may be found near $1805 per ounce and further down at $1,786 per ounce, while resistance may be found around 1,870 per ounce and higher up at $1,920 per ounce.
The dollar slid on Monday amid recession fears, with the dollar index falling below 104. US Bond yields firmed though, with the US 10-year treasury note yielding approximately 3.2%. Real yields compete directly with gold, which is a non-interest-bearing asset, and their rise puts pressure on the price of gold.
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. Increased risk aversion sentiment due to the war in Ukraine has boosted gold prices over the past few months.
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.
An increasing number of major Central Banks are moving towards a tighter fiscal policy to tame soaring inflation rates. In its latest policy meeting, the US Federal Reserve voted to raise its benchmark interest rate by 75 points, while the BOE raised its interest rate by 25 base points. Stalling economic growth, however, combined with fiscal tightening gives rise to fears of recession, further supporting the price of gold.
G7 leaders are meeting this week to discuss further sanctions on Russia, among which is an embargo on Russian gold exports. Gold exports provide revenue of tens of billions of dollars, according to an announcement by US President Joe Biden. A ban on Russian gold exports could see gold prices skyrocketing.
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