Gold prices rally as the dollar weakens

Gold prices rallied on Wednesday, after trading at a nine-month low, climbing to $1,745 per ounce. If gold prices decline, support may be found at $1,675 per ounce, while resistance may be found at around 1,813 per ounce and higher up at $1,870 per ounce.

The dollar prices showed high volatility on Wednesday, with the dollar index fluctuating between 108.5 and 107.5. The dollar index rose above a 20-year high of 108.5 before the release of US CPI data, which are key inflation indicators. CPI data released on Wednesday showed that US inflation in June hit a 40-year high of 9.1% on an annual basis. Record high inflation rates for June had been already priced in by markets though, and the dollar retreated after the release of the CPI data.

US Bond yields remained strong on Wednesday, with the US 10-year treasury note yielding approximately 3%. Real yields compete directly with gold, which is a non-interest-bearing asset, and their rise puts pressure on the price of gold. 

Rising global recession fears have sparked a risk-aversion sentiment, boosting safe-haven assets. The dollar’s impressive rally, however, is weighing down competing currencies, such as gold. Even though recession fears traditionally provide support for safe-haven assets, the gold price is retreating, as interest rate assets become a comparatively more appealing choice.

Increased rate hike expectations also dampen the appeal of gold. Fed rhetoric is pointing towards a strong rate hike in July. A rate hike of 75 base points is already been priced in by markets, catapulting the dollar to record highs and pushing gold price down.

Important US inflation PPI indicators, scheduled to be released on Thursday, may affect the gold price. These are key indicators of consumer inflation and may play a decisive role in determining the level of fiscal tightening that the Fed is going to decide on this month.

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Written by:
Myrsini Giannouli

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