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Gold price plummets as dollar reaches 20-year high

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Written by:
Myrsini Giannouli

06 July 2022
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Gold price plummeted on Tuesday, breaking through the $1,805 and $1,786 per ounce support levels and falling as low as $1,769 per ounce. If gold price declines further, support may be found at $1,752 per ounce, while resistance may be found at around 1,870 per ounce and higher up at $1,920 per ounce.

The dollar was propelled to a fresh 20-year high on Tuesday, with the dollar index climbing above the 106 level and reaching 106.6, on global recession concerns. The dollar’s record high pushed gold prices down. US Bond yields on the other hand fell on Tuesday, with the US 10-year treasury note yielding below 2.8%. Real yields compete directly with gold, a non-interest-bearing asset, and their rise puts pressure on the price of gold. 

A strong dollar and US bond yields have been putting pressure on gold prices in the past few weeks, while increased rate hike expectations dampen gold's appeal. Major Central Banks, including the Fed and the BOE, aim to tighten their fiscal policies further this year to rein in inflation. 

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. Even though recession fears traditionally provide support for safe-haven assets, the gold price is retreating, as interest rate assets become a comparatively more appealing choice.

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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Written by:
Myrsini Giannouli

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