Gold gains as the dollar slips

Gold prices benefitted from the dollar’s decline on Thursday, rising to $1,832 per ounce. If gold prices increase, resistance may be encountered near $1,858 per ounce, while if gold prices decline, support may be found near $1,804 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 dipped on Thursday, with the dollar index dropping to 105.3. US Treasury yields also edged lower, with the US 10-year bond yielding 3.95%.  

Fed rhetoric affects gold prices considerably this week. Fed Chair Powell testified before the Senate Banking Committee on Tuesday and his speech was more hawkish than anticipated, driving gold prices down. Powell warned that the US central bank is prepared to accelerate the pace of tightening if price pressures remain high. Powell also indicated that the Fed’s terminal rate will likely be higher than initially anticipated.

Powell’s second testimony on Wednesday was slightly less hawkish, emphasizing that, although inflation had been more resilient than anticipated, any decision to hike rates more aggressively would be data-based. 

The Federal Reserve raised interest rates by only 25 basis points at its February meeting, bringing the benchmark interest rate to a target range of 4.50% to 4.75%. In light of Powel’s speech, however, markets have adjusted Fed rate hike expectations from a 25-bp raise to a 50-bp increase in March. Market expectations of the Fed’s peak rate have also increased, moving to a range of 5.5%-5.75%. 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. 

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Written by:
Myrsini Giannouli

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