Market volatility was high on Tuesday, affecting currencies and commodities. Gold prices seesawed, gaining strength early in the day but paring their gains later on. The gold price rose above the $1,680 per ounce level but later fell back to $1,665 per ounce. If gold prices decline further, support may be found at the 2020 low near $1,441 per ounce. Resistance may be found around 1,735 per ounce and higher up at $1,765 per ounce.
The dollar experienced high volatility on Tuesday, affecting gold prices. The USD started strong in early trading on Tuesday, collapsed later in the day, and finally bounced back. The dollar index fell to 112.4 and then rallied climbing back to 113.3. US Treasury yields gained strength, with the US 10-year bond yielding almost 4.0%.
Global recession concerns are causing high market volatility ahead of the US inflation data later in the week. Sharp rate hikes and continuous fiscal tightening run the risk of tipping some of the world’s leading economies into recession. World Bank President David Malpass and International Monetary Fund Managing Director Kristalina Georgieva warned earlier this week of a growing risk of global recession while stressing the need to bring inflation under control.
Continued hawkish Fed rhetoric has rekindled expectations of sharp rate hikes, boosting dollar prices at the expense of competing assets, such as gold. 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. In its latest monetary policy meeting, the US Fed raised its interest rate by 75 basis points. Rampant US inflation has raised expectations for another steep rate hike at the Fed’s next policy meeting in November, putting pressure on gold prices.
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