Gold price dropped on Tuesday, amid reports of progress in the peace talks between Russia and Ukraine. Gold price fell as low as $1,890 per ounce, but recovered a little later in the day and is currently testing the $1,916 per ounce resistance. If the price of gold decreases, support may be found near 1,877 per ounce, while further resistance may be found around $2,000 per ounce.
Gold has been supported by the conflict in Ukraine, but reports of advancing peace negotiations between Russia and Ukraine have put pressure on the price of gold. On Tuesday, diplomatic talks have sparked hopes of a resolution to the crisis. The Ukrainian side has reportedly proposed to abandon its prospects of joining military alliances, in exchange for security guarantees. Russia on the other hand has pledged to scale down military operations in Kyiv and Chernihiv and is reportedly willing to let Ukraine join the EU, with the condition that it does not join NATO.
The war in Ukraine has triggered a risk-aversion sentiment, driving investors towards safe-haven assets and propelling the price of gold to $2,050 per ounce at the beginning of the month. With advancing peace negotiations though, risk sentiment is once again on the rise, driving the price of gold down.
Global yields are also on the rise, curtailing the demand for gold. Real yields have climbed across the US Treasury chest since last week, boosted by reports of a shift in the Fed’s fiscal policy towards a more hawkish direction, putting downward pressure on the price of gold. US Treasury yields remained high on Tuesday, with the 10-year treasury yields reaching a two-year high of 2.5%, as investors anticipate a more aggressively hawkish Fed policy. Real yields compete directly with gold, which is a non-interest-bearing asset, and their rise puts pressure on the price of gold.
Sanctions against Russia have been driving commodities up, especially energy-related commodities, contributing to rising inflation. The price of gold benefits from rising inflation, since it is often used as an inflation hedge. The effect of rising inflation on gold seems to be temporary though. Global inflationary pressures, increased by the war in Ukraine, are pushing major Central Banks toward a more hawkish fiscal policy. The Federal Reserve raised its benchmark interest rate by 25 base points in its latest policy meeting, bringing its benchmark interest rate to 0.50% and the BOE similarly raised its benchmark interest rate by 25 base points, to 0.75%.
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