Gold prices plummeted below $1,820 per ounce on Wednesday, weighed down by the dollar’s rally, falling as low as $1,812 per ounce. 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 gained strength on Wednesday on hawkish Fed rhetoric, with the dollar index climbing above 105.1. US Bond yields retreated a little, with the US 10-year treasury note yielding approximately 3.1% on Wednesday. Real yields compete directly with gold, which is a non-interest-bearing asset, and their rise puts pressure on the price of gold.
An increasing number of major Central Banks, including the Fed and the BOE, are moving toward a tighter fiscal policy to tame soaring inflation rates. 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. Increased risk aversion sentiment due to the war in Ukraine has boosted gold prices over the past few months. In addition, 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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