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Gold edges higher as the dollar retreats

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Written by:
Myrsini Giannouli

19 July 2022
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Gold prices edged higher on Monday, as the dollar retreated, trading around the $1,715 per ounce level. If gold prices decline, support may be found at $1,675 per ounce, while resistance may be found at around 1,813 per ounce and higher up at $1,870 per ounce.

The dollar retreated on Monday, as it had been trading in overbought territory, and the dollar index fell to the 107 level. US Bond yields remained strong on Monday, with the US 10-year treasury note yielding approximately 3%. Real yields compete directly with gold, which is a non-interest-bearing asset, and their rise puts pressure on the price of gold. 

Gold plummeted last week, hitting a nine-month low and moving close to a yearly low below the $1,700 per ounce psychological level. The dollar gained strength last week, propped up by soaring US inflation and steep Fed rate hike expectations, with the dollar index rising above 109.2 and setting a fresh 20-year high before closing near 108 on Friday. 

US inflation continues to rise at an alarming rate, increasing the chances of a steep Fed rate hike this month and dampening the appeal of gold. A Fed rate hike of at least 75 bps is priced in by markets this month, putting pressure on the gold price. Other major Central Banks are also tightening their monetary policy, with the ECB expected to raise its interest rate by 25 bps this week.

Rising global recession fears have sparked a risk-aversion sentiment, boosting safe-haven assets. The dollar’s impressive rally, however, is weighing down competing currencies, such as gold. Even though recession fears traditionally provide support for safe-haven assets, the gold price is retreating, as interest rate assets become a comparatively more appealing choice.

XAUUSD 1hr chart

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Written by:
Myrsini Giannouli

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