Gold prices dropped below $1,820 per ounce on Tuesday, weighed down by the dollar’s recovery. If the price of gold decreases, support may be found near $1805 per ounce and further down at $1,786 per ounce, while resistance may be found around 1,870 per ounce and higher up at $1,920 per ounce.
The dollar gained strength on Tuesday, with the dollar index climbing back to 104.5. US Bond yields remained high, with the US 10-year treasury note yielding approximately 3.2 on Tuesday. Real yields compete directly with gold, which is a non-interest-bearing asset, and their rise puts pressure on the price of gold.
G7 leaders decided on Tuesday to take further action against Russia, by imposing “severe and immediate economic costs” on Russia. G7 participants also agreed on an embargo on Russian gold exports. Gold exports provide revenue of tens of billions of dollars, according to an announcement by US President Joe Biden. If the ban on Russian gold is implemented, it can boost gold prices considerably.
Stalling global economic growth gives rise to recession fears, supporting the price of gold. In the past few weeks, recession fears have mounted, as many countries show signs that their economy is slowing down. At the beginning of the year, the global economy was on the road to recovery from the effects of the pandemic. The war in Ukraine however, has set economic growth back, with prices of energy and food rising and inflation reaching peak levels, crippling economic growth. Increased risk aversion sentiment due to the war in Ukraine has 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. 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. An increasing number of major Central Banks, including the Fed and the BOE, are moving toward a tighter fiscal policy to tame soaring inflation rates.
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