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Gold price steadies amid global recession concerns

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Written by:
Myrsini Giannouli

05 July 2022
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Gold price steadied on Monday, after falling as low as $1,785 per ounce last week. Gold price traded just above the $1,805 per ounce level support on Monday, testing the support. If gold price declines once again, further support may be found at $1,786 per ounce, while resistance may be found at around 1,870 per ounce and higher up at $1,920 per ounce.

Monday was the 4th of July holiday for the US and was a slow day for the dollar, with the dollar index on the decline, but remaining above the 105 level most of the day. On Monday, increased risk appetite put pressure on safe-haven assets, such as the dollar and gold.  US Bond yields remained at Friday’s closing level as Monday was a Bank Holiday, with the US 10-year treasury note yielding below 2.9%. Real yields compete directly with gold, which is a non-interest-bearing asset, and their rise puts pressure on the price of gold. 

Stalling global economic growth, on the other hand, 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. 

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

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. 

XAUUSD 1hr chart

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Written by:
Myrsini Giannouli

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