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Gold price rally stalled as risk sentiment grows

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Written by:
Myrsini Giannouli

18 May 2022
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Gold prices reached a 13-week low of $1,799 per ounce last week, pushed down by the strong dollar and US yields. On Monday however, gold prices recovered, reaching $1,823 per ounce, as the dollar weakened. The rally of gold prices was stalled on Tuesday though, as market risk appetite returned. 

Gold prices retreated on Tuesday, with the commodity trading as low as $1,814 per ounce. 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 supported by increased risk aversion sentiment in the past few months, as traders turned towards safe-haven assets. 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 in Ukraine continues, gold has been overbought in the past few months and its potency as a safe-haven asset is beginning to wan. With risk appetite returning to markets though, gold becomes even less appealing to market investors. 

The US dollar and Treasury yields have also been rising against competing assets. The dollar weakened on Tuesday though, with the dollar index falling to 103.3, pushed down by disappointing economic data. The USD, which has been moving into overbought territory, softened this week, while US yields moved to more moderate rates, with the US 10-year treasury note yielding less than 3% on Tuesday. Real yields compete directly with gold, which is a non-interest-bearing asset, and their rise puts pressure on the price of gold.

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.

XAUUSD 1hr chart

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Written by:
Myrsini Giannouli

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