Gold prices edged lower on Tuesday, trading near a nine-month low, falling to the $1,725 per ounce level, as the dollar climbed to a fresh 20-year high. If gold prices decline further, support may be found at $1,675 per ounce, while resistance may be found at around 1,813 per ounce and higher up at $1,870 per ounce.
The dollar climbed to fresh 20-year highs on Tuesday, with the dollar index rising above the 108.5 level early in the day. US Bond yields firmed on Tuesday, with the US 10-year treasury note yielding approximately 3%. Real yields compete directly with gold, which is a non-interest-bearing asset, and their rise puts pressure on the price of gold.
Rising global recession fears have sparked a risk-aversion sentiment, boosting safe-haven assets. The dollar’s impressive rally, however, is weighing down competing currencies, such as gold. 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.
Increased rate hike expectations also dampen the appeal of gold. Fed rhetoric is pointing towards a strong rate hike in July. A rate hike of 75 base points is already been priced in by markets, catapulting the dollar to record highs and pushing gold price down.
High inflation rates traditionally support the price of gold, which is often used as an inflation hedge. High inflation, however, increases the chances of Central Banks raising their interest rates, reducing the appeal of gold.
Important US inflation CPI and PPI indicators, scheduled to be released on Wednesday and Thursday respectively, may affect the gold price. These are key indicators of consumer inflation and may play a decisive role in determining the level of fiscal tightening that the Fed is going to decide on this month.
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