Gold prices surged above $1,845 per ounce on Wednesday, as the US dollar and yields retreated. If the price of gold decreases, 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.
The dollar retreated on Wednesday on recession concerns, with the dollar index hovering just above 104. US Bond yields also declined, with the US 10-year treasury note yielding below 3.2%. Real yields compete directly with gold, which is a non-interest-bearing asset, and their rise puts pressure on the price of gold.
Global recession fears have been mounting, supporting the safe-haven gold. An increasing number of major Central Banks are moving towards a tighter fiscal policy to tame soaring inflation rates. Last week, the US Federal Reserve voted to raise its benchmark interest rate by 75 points and the BOE by 25 base points. Stalling economic growth, combined with fiscal tightening gives rise to fears of recession, further supporting the price of gold.
Concerns about the state of the economy in China, after the extensive Covid lockdowns in Shanghai and other cities, also boost the gold prices. Increased risk aversion sentiment due to the war in Ukraine has also boosted gold prices over the past few months.
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. Rising costs of food and energy have contributed to soaring inflation rates worldwide. 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.
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