Gold price reached a 3-month low 0f $1,819 per ounce on Thursday, pushed down by a strong dollar and US yields. 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 but is undermined by increasingly hawkish Fed policy, 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 Thursday, US PPI data showed that inflationary pressures continue to grow, catapulting the dollar index to a 20-year high of 104.9.
Inflationary pressures are known to support the price of gold, which is often used as an inflation hedge. As US inflation rises though, the USD and US yields grow stronger, pushing the price of gold down,
US yields have been boosted by a tightening in the Fed’s monetary policy, with the US 10-year treasury note yielding approximately a 3% level on Thursday. 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. Geopolitical tensions have propelled gold prices close to an all-time high of $2,075 per ounce earlier in the year.
Even though the war continues without an end in sight, gold has been overbought in the past few months and its potency as a safe-haven asset is beginning to wan. Even though risk-aversion drives investors towards safe-haven assets, the dollar has been surpassing other assets in popularity, decreasing the appeal of gold.
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