Gold price reached a 3-month low on Wednesday ahead of the US CPI data. Gold fell to $1,831 per ounce level, pushed down by a strong dollar and US yields. The gold price rallied later in the day, supported by strong US inflation data. If the price of gold decreases, further support may be found at $1,782 per ounce, while resistance may be found at around 1,920 per ounce and higher up at $2,000 per ounce.
The price of gold has been driven by conflicting market forces over the past weeks and balances between increased risk-aversion and rising yields. Gold is supported by increased risk-aversion sentiment arising from the war in Ukraine. Gold price is undermined by increasingly hawkish Fed policy though, which boosts the dollar and real yields.
The rising dollar and US yields have put pressure on the price of gold over the past couple of weeks. Hawkish Fed policy and increased risk-aversion sentiment, buoyed the dollar to 20-year highs this week. On Wednesday, high CPI data showed that inflation rates are still high in the US, catapulting the dollar index above 104.
On the other hand, inflationary pressures support the price of gold, which is often used as an inflation hedge. Following the release of the strong US inflation data on Wednesday, gold price regained some of its lost ground.
US yields have been boosted by a tightening in the Fed’s monetary policy, with the US 10-year treasury note maintaining the 3% level 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.
Gold’s safe-haven status supports its price, as the ongoing crisis between Russia and Ukraine drives investors away from riskier assets as global economic growth is stalled. Continued Russian hostilities against Ukraine have increased risk-aversion sentiment, providing support for gold. Even though risk-aversion drives investors towards safe-haven assets, the dollar has been surpassing other assets in popularity, decreasing the appeal of gold.
Concerns about the state of the economy in China, after the fresh rise of Covid cases and the lockdown in Shanghai, also boost the price of gold.
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