Gold prices tanked Tuesday as the dollar rallied, with gold testing the $1,700 per ounce support. If gold prices continue to decline, support may be found at the yearly low near $1,681 per ounce. Resistance may be around 1,765 per ounce and higher at $1,802 per ounce.
The dollar spiked on Tuesday after the release of US inflation data and the dollar index rose above 109.6. US Treasury yields also rose, with the US 10-year bond yielding above 3.4%.
US CPI data released on Tuesday exceeded expectations, propelling the dollar upwards and pushing gold prices down. US inflation forecasts indicated that headline inflation would decelerate at a faster pace this month due to a slowdown in energy costs. The dollar went up after the release of the US inflation data, as the Fed is likely to maintain a hawkish stance to combat persistently high inflation rates. Markets are currently wavering between a 50-bp and a 75-bp Fed rate hike in September, with odds favoring a 75-bp rate hike after Tuesday’s inflation data.
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.
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.
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