Gold prices drop as the dollar gains strength

Gold prices declined on Monday, dropping to $1,945 per ounce. If gold prices increase, resistance may be encountered near $1,987 per ounce, while if gold prices decline, support may be found near $1,945 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 rallied on Monday, with the dollar index rising to the 101.4 level. US Treasury yields also gained strength, with the US 10-year bond climbing to 3.86%.

Soft US inflation data have provided support for gold prices in the past couple of weeks. Signs of cooling US inflation have shifted Fed interest rates expectations towards a less hawkish direction, 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. 

This week, market attention will be focused on the Fed policy meeting on the 26th. The U.S. Federal Reserve kept its interest rate steady at its June policy meeting for the first time in well over a year. Fed officials have voted to keep the central bank’s interest rate at a target range of 5.00% to 5.25%. 

Even though US inflation slowed more than expected in June, dropping close to the Fed’s 2% goal, Fed policymakers will likely raise rates again this week to ensure a sustainable drop in inflation. Most analysts expect that the US central bank will raise interest rates by 25-bp on Wednesday. 

There is considerable doubt on whether the Fed will continue hiking rates after this week’s rate increase. Market participants will follow the Fed’s press conference on Wednesday closely, for hints into the central bank’s future policy direction. If the Fed maintains a hawkish bias and points to more rate hikes up ahead, interest rate expectations will rise again, boosting the dollar and pushing gold prices down.

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: