Choose country & language:

Gold rally paused as the dollar rebounds

Home >  Daily Market Digest >  Gold rally paused as the dollar rebounds

Written by:
Myrsini Giannouli

17 January 2023
Share the article

Gold prices climbed to their highest level since April last week, as soft US inflation print put pressure on the dollar. Gold prices continued to advance in early check on Monday, but their rally was halted later in the day, as the dollar rebounded. Gold prices climbed as far as $1,928 per ounce, before dropping back by $1,915 per ounce. If gold prices continue to increase, resistance may be encountered near $2,000 per ounce, while if gold prices decline, support may be found near $1,825 per ounce.

Gold prices have been predominantly directed by the dollar’s movement, as the competing gold typically loses appeal as an investment when the dollar rises. The dollar plummeted last week after the release of the highly-anticipated US inflation report. The dollar extended losses in early trading on Monday, with the dollar index retreating to 101.8, but rallied later in the day, rising above 102.5. 

US Treasury yields remained unchanged on Monday, with the US 10-year bond yielding approximately 3.5%. Monday was a Bank holiday in the US for Martin Luther King Day and no fundamentals were released for the dollar.

US headline inflation dropped to 6.5% year-on-year in December from 7.1% in November. The soft inflation print put pressure on the dollar and gold prices soared, as cooling price pressures may give the US Federal Reserve some leeway towards scaling back its interest rate increases. Gold prices are approaching overbought territory though, as they move closer to levels reached only after the crisis in Ukraine started last year.

Increases in central banks’ interest rates put pressure on gold prices since assets yielding interest become a more appealing investment compared to gold as interest rates rise. Several major Central Banks, such as the Fed, the ECB, and the BOE raised interest rates considerably in the past year. A worldwide wave of fiscal tightening has been driving gold prices down.

Gold prices surge as the Fed and other central banks start to scale back their aggressive rate hiking. Gold has been in a bullish trend for the last couple of months, which is likely to continue if the Fed signals a pause in raising interest rates.

Increased global recession concerns, however, raise the appeal of gold as an investment. In China, prolonged Covid lockdowns have dealt a significant blow to the economy. A diminishing economic outlook may force central banks around the world to pivot to a more dovish fiscal policy. Even though inflation rates remain high, signs of cooling price pressures have reduced rate hike expectations, providing support for gold prices.

The most critical fundamentals this week are the US PPI inflation indicators on the 18th. Together with last week’s CPI data, the PPI indicators will provide a more complete picture of the direction of US inflation and are likely to affect gold prices. As interest in the Fed’s future policy direction mounts, markets will also be especially sensitive to FOMC members’ speeches this week.

XAUUSD 1hr chart

TRADE GOLD

The content provided in this material and/or any other material that this content is referred to, whether it comes from a third party or not, is for information purposes only and shall not be considered as a recommendation and/or investment advice and/or investment research and/or suggestions for performing any actions with financial products or instruments, or to participate in any particular trading strategy and cannot guarantee any profits. Past performance does not constitute a reliable indicator of future results. TopFX does not represent that the material provided here is accurate, current, or complete and therefore shouldn't be relied upon as such. This material does not take into account the reader's financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of TopFX, no reproduction or redistribution of the information provided herein is permitted.

Written by:
Myrsini Giannouli

Share the article:

Latest news

Dollar tumbles as markets anticipate Fed pivot

Myrsini Giannouli 29 November 2023

Gold prices surge as US yields decline

Myrsini Giannouli 29 November 2023

Oil prices rally on anticipated supply cuts

Myrsini Giannouli 29 November 2023

Bitcoin rises above key $38,000 level

Myrsini Giannouli 29 November 2023
Why TopFX
10-years
13+ years

industry presence
as a Liquidity Provider

Spreads
Spreads
from 0.0 pips

and reliable execution

Segregated
Segregated

client funds

First-class
First-class

customer support

Open your Live Account in 3 Steps
Step 1

Fill in the registration
form and click
"Create account".

Step 2

Once you are in the client secure area, please proceed with uploading your Proof of Identity and Proof of Residence.

Step 3

When your live account is approved, you can deposit funds and start trading on your chosen platform!

-->