Gold moves higher on inflation concerns

Gold prices traded higher on Wednesday, climbing almost to $1,950 per ounce. If the price of gold decreases, support may be found near 1,877 per ounce, while further resistance may be found around $2,000 per ounce. The price of gold is supported by global inflationary pressures, as well as by the conflict in Ukraine.

US Treasury yields retreated a little on Wednesday, after spiking on Tuesday boosted by reports of a shift in Fed’s fiscal policy towards a more hawkish direction. Real yields compete directly with gold, which is a non-interest-bearing asset, and their rise puts pressure on the price of gold.

During the past few weeks, the gold price had climbed up to $2,050 per ounce, its highest level since the peak of the pandemic, in August 2020. The war in Ukraine has triggered a risk-aversion sentiment, driving investors towards safe-haven assets. Diplomatic talks between Russia and Ukraine continue, sparking hopes of a de-escalation of the conflict. Negotiations have entered a more serious phase, as both sides seem to feel there is room for compromise, although so far, a solution does not seem near and gold price benefits from the ongoing crisis.

Sanctions against Russia have been driving commodities up, especially energy-related commodities, contributing towards rising inflation. The price of gold benefits from rising inflation, since it is often used as an inflation hedge. The effect of rising inflation on gold seems to be temporary though. Global inflationary pressures, increased by the war in Ukraine, are pushing major Central Banks towards a more hawkish fiscal policy. The Federal Reserve raised its benchmark interest rate by 25 base points last week, bringing its benchmark interest rate to 0.50%. The BOE followed suit a day later, raising its benchmark interest rate by 25 base points, to 0.75%. 

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Written by:
Myrsini Giannouli

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