Gold prices were volatile on Wednesday, influenced by uncertainty in some of the world’s biggest economies and global recession concerns. Gold prices dropped to $1,940 per ounce on Wednesday but pared losses later in the day reclaiming the $1,940 per ounce level. 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 traded with low volatility on Wednesday, edging lower as markets await the release of US GDP data on Wednesday. The dollar index remained below the 102 level most of the day, without a clear direction in the absence of US economic data. US Treasury yields also dipped on Wednesday, with the US 10-year bond yielding approximately 3.45%.
US inflation seems to be cooling, driving the dollar down and propelling gold prices upwards. US PPI data last week fell below expectations, declining by 0.5% in December, versus estimates of a 0.1% drop. US headline inflation also dropped to 6.5% year-on-year in December from 7.1% in November. Cooling price pressures may give the US Federal Reserve some leeway towards scaling back its interest rate increases, boosting gold prices.
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. As the Fed and other central banks start to scale back their aggressive rate hiking, gold prices surge.
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. Even though inflation rates remain high, signs of cooling price pressures have reduced rate hike expectations, providing support for gold prices. Gold prices are approaching overbought territory though, as they trade close to levels reached only after the crisis in Ukraine started last year.
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