Gold in free fall as dollar rallies

Gold prices plummeted on Thursday, hitting a nine-month low and moving close to a yearly low. The dollar gained strength on Thursday, propped up by soaring US inflation and steep Fed rate hike odds. Gold prices fell below the $1,700 per ounce psychological level on Thursday. 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 soared on Thursday propped up by high US inflation rates, with the dollar index rising above 109.2 and setting a fresh 20-year high. PPI and Core PPI data were released on Thursday and, combined with Wednesday’s CPI data, paint a clear picture of the current inflation conditions in the US. On an annual basis, the PPI in June reached 11.3% showing that US consumer inflation is accelerating. Collectively, the CPI and PPI data indicate that US inflation continues to rise at an alarming rate, increasing the chances of a steep Fed rate hike this month.

US Bond yields remained strong on Thursday, 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. The Fed is moving at an aggressively hawkish pace, spurred by soaring US inflation rates. A Fed rate hike of at least 75 bps this month is priced in by markets, putting pressure on the gold price. Other major Central Banks are also tightening their monetary policy, with the Bank of Canada hiking by 100 base points on Wednesday and the ECB is expected to raise its interest rate by 25 bps next week.

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Written by:
Myrsini Giannouli

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