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Gold rebounds as dollar sinks

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Written by:
Myrsini Giannouli

08 September 2022
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Gold prices rebounded on Wednesday, rising above $1,715 per ounce, after plummeting below the $1,700 per ounce support level earlier in the day. If gold prices continue to decline, the $1,700 per ounce level may again provide support, while further support may be found at the yearly low near $1,681 per ounce. Resistance may be found around 1,765 per ounce and higher up at $1,802 per ounce.

Gold has been retreating, pushed down by the rise of competing assets, such as the dollar and US treasury yields. The dollar exhibited high volatility on Wednesday, as Fed rate hike expectations wavered. Early on Wednesday the dollar index shot up above 110.7 but plummeted by a whole point below 109.7 later in the day. US Treasury yields were similarly affected, with the US 10-year bond yield falling from 3.34% to 3.25%. 

Fed rhetoric propelled the dollar to 20-year highs in the past couple of weeks, amidst mounting expectations of a steep Fed rate hike in September. Markets have been pricing in a significant Fed rate hike of 75-base points for September.

Fed rhetoric on Wednesday remained hawkish, although markets perceived FOMC members’ speeches as more cautious. The dollar plummeted after the speeches of FOMC Members Mester and Brainard on Wednesday, as odds of a September rate hike started shifting in favor of a 50-bp increase in interest rate.

The pivot of most major Central Banks toward a tighter monetary policy to combat rising inflation rates is putting pressure on the price of gold. Assets yielding interest become a more appealing investment compared to gold, as interest rates rise. 

The ECB Monetary Policy meeting on Thursday may affect gold prices, as well as Federal Reserve Jerome Powell’s speech on the same day.

XAUUSD 1hr chart

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Written by:
Myrsini Giannouli

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