Gold price slipped on Tuesday, ahead of the Fed meeting on Wednesday, trading below the 1,877 per ounce support, near a three-month low. If the price of gold decreases, further support may be found at 1,782 per ounce, while resistance may be found at around $2,000 per ounce.
The price of gold has been driven by conflicting market forces over the past weeks and balances between increased risk-aversion and rising yields. Gold is supported by increased risk-aversion sentiment arising from the war in Ukraine. Gold price is undermined by increasingly hawkish Fed policy though, which boosts the dollar and real yields.
The rising dollar and US yields put pressure on the price of gold. The dollar has gained strength these past few weeks, with the dollar index rising to the 103.9 level, its highest point in 20 years, spurred by hawkish Fed rhetoric, ahead of the Fed policy meeting on Wednesday. Increasing odds of a sharp rate hike of at least 50 base points at the Fed’s meeting have been boosting the market appeal of the dollar against other safe-haven assets.
Rising yields across the US treasury curve also contribute to the gold price’s decline. Real yields have been boosted by a tightening in the Fed’s monetary policy, with the US 10-year treasury note rising to 3% for the first time since 2018 and reaching 3.1% 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.
Gold’s safe-haven status supports its price, as the ongoing crisis between Russia and Ukraine drives investors away from riskier assets as global economic growth is stalled. Continued Russian hostilities against Ukraine have increased risk-aversion sentiment, providing support for gold. The situation between Russia and Ukraine continues to escalate, as Russian President Vladimir Putin threatens about using nuclear weapons, while he cuts off the gas supply to Poland and Bulgaria. Even though risk-aversion drives investors towards safe-haven assets, the dollar has been surpassing other assets in popularity, decreasing the appeal of gold.
Concerns about the state of the economy in China, after the fresh rise of Covid cases and the lockdown in Shanghai, also boost the price of gold.
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