Gold prices climbed to $1,680 per ounce on Monday, going above the $1,675 per ounce resistance level. If gold prices decline, support may be found near $1,616 per ounce and further down at the 2020 low near $1,441 per ounce. Resistance may be found at around $1,729 per ounce.
Gold prices remained strong on Monday, depending primarily on USD price and US bond yields. Surprisingly, the US dollar and yields moved in opposite directions on Monday, as the dollar edged lower, while bond yields gained strength.
The dollar edged lower on Monday, with the dollar index dropping to 110.1. US Treasury yields gained strength, however, in the wake of last week’s Fed rate hike. The US 10-year bond yielded 4.2% on Monday, while the US 2-year bond yielded above 4.7% maintaining its highest level since 2007.
The dollar has been trading in overbought territory and has been slipping since last week. The USD was boosted by the Fed’s rate hike but weak jobs data pushed the dollar down last week and the dollar’s sell-off continued on Monday. Gold prices benefitted from the dollar’s weakness, skyrocketing last week and remaining strong on Monday despite surging bond yields.
The US mid-term Congressional elections will take place on Tuesday and their outcome may cause volatility in dollar and gold prices. Concerns that the Democratic party might lose control of Congress in Tuesday’s elections, leading to political instability in the US, have pushed the dollar down.
Gold prices are under pressure by the shift of most major Central Banks towards a tighter monetary policy to combat rising inflation rates. Assets yielding interest become a more appealing investment compared to gold as interest rates rise.
The US Federal Reserve voted to increase interest rates by 75 basis points at its monetary policy meeting last week. The Fed has so far increased interest rates by a total of 375 basis points this year, bringing its benchmark interest rate in a range of 3.75% to 4.0%. The FOMC Statement issued by the Fed contained a subtle change in forward guidance. The tone of the statement was more cautious than before, indicating that the Fed may be pondering slowing the pace of rate hikes. Market expectations are currently in favor of a 50-bps rate hike in December and a 25-bps hike in January. Rate hikes are expected to taper off in 2023 as the central bank moves into a stable interest rate.
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