Gold prices slipped on Wednesday, falling below $1,628 per ounce, as the dollar performed an impressive rally. If gold prices decline, support may be found near $1,614 per ounce and further down at the 2020 low near $1,441 per ounce. Resistance may be around 1,729 per ounce and higher at $1,765 per ounce.
The dollar had a bullish run on Wednesday, gaining strength against a basket of other currencies. The dollar’s recent sell-off had boosted gold prices, but as the currency rallied, gold slipped. The dollar index gained more than a full point on Wednesday, rising from below 112 to above 113 within the day. US Treasury yields also soared, with the US 10-year bond yield climbing from 4.0% to above 4.1%.
The dollar had slipped at the beginning of the week, trading with low volatility, as many market participants awaited the results of the UK and EU inflation reports. Both the Sterling and the Euro declined concerning the dollar after the release of the inflation data, boosting the dollar. Minor economic indicators released on Wednesday were optimistic for the US economic outlook further supporting the dollar.
Price pressures in the US continue to increase, putting extra strain on the Federal Reserve to continue its monetary tightening policy. Sharp rate hikes and continuous fiscal tightening run the risk of tipping some of the world’s leading economies into recession.
Continued hawkish Fed rhetoric has rekindled expectations of sharp rate hikes, boosting dollar prices at the expense of competing assets, such as gold. Fed rhetoric remains firmly hawkish, with FOMC policymakers Esther George and Mary Daly commenting over the weekend that the US Central Bank may need to step up its rate hikes to combat soaring inflation.
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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