Gold price continued to decline on Tuesday from last week’s highs of $2,050 per ounce, falling as low as $1,907 per ounce. If the price of gold continues to decrease, support may be found near 1,877 per ounce, while resistance may be found at around $2,000 per ounce. Diplomatic talks between Russia and Ukraine were resumed this week, sparking hopes of a de-escalation of the conflict, putting pressure on the price of gold.
Treasury yields rose across the US treasury chest this week, in expectations that the Fed would tighten its monetary policy in its meeting on Wednesday. The 10-year US Treasury yield especially, rose above 2.1% on Tuesday, its highest level since 2019. Germany’s 10-year Bund yield, which serves as a barometer for eurozone borrowing costs, has also been rising since the ECB showed signs of shifting towards a more hawkish monetary policy last week. Rising treasury yields this week have checked the ascend of gold. Real yields compete directly with gold, which is a non-interest-bearing asset, and their rise puts pressure on the price of gold.
During the past few weeks, the gold price has climbed at its highest level since the peak of the pandemic, in August 2020. The war in Ukraine has triggered a risk-aversion sentiment, driving investors towards safe-haven assets. Sanctions against Russia are driving commodities up, especially energy-related commodities, contributing towards 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, as soaring inflation rates may push major Central Banks towards a more hawkish policy. The Federal Reserve and the Bank of England are both expected to raise their benchmark interest rates by at least 25 base points this week, boosting the value of real yields and putting pressure on the price of gold.
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