Gold gains as markets anticipate pause in rate hikes

Gold prices soared last week, reaching a new all-time high of $2,081 per ounce. Gold prices erased most of the week’s gains by the end of the week though, retreating to $2,015 per ounce but rallied again towards the end of the week. Gold prices extended gains on Tuesday, rising to $2,034 per ounce. If gold prices increase, resistance may be encountered near $2,081 per ounce, while if gold prices decline, support may be found near $1,976 per ounce. 

Increased risk aversion sentiment provides support for gold prices. The recent crisis in the banking sector caused risk sentiment to plummet, raising the appeal of safe-haven assets. Fears of a banking sector meltdown enhance gold’s haven status.

In addition, the Federal Reserve signaled a pause in rate hikes last week, boosting gold prices. The Federal Reserve raised interest rates by 25 basis points at its monetary policy meeting last week, bringing the benchmark interest rate to a 16-year high target range of 5.00% to 5.25%. Many analysts predict that there is a high probability of rate cuts starting in November. Expectations of a pivot to a more dovish policy provide support for gold prices.

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 Tuesday, ahead of Wednesday’s CPI data, with the dollar index climbing to 101.6. US Treasury yields also gained strength, with the US 10-year bond climbing to 3.52%. 

US CPI inflation data on Wednesday are this week’s most highly-anticipated fundamentals, as they may affect the Fed’s monetary policy. The release of the CPI data on Wednesday may cause volatility in dollar and gold prices.

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Written by:
Myrsini Giannouli

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