Gold plummets as dollar, yields, rally

Gold traded mostly sideways last week, exhibiting low volatility, with its price depending largely on the dollar’s price.  Gold prices dipped to $1,840 per ounce on Monday, as the dollar rallied. If the price of gold decreases, support may be found at $1,786 per ounce, while resistance may be found at around 1,920 per ounce and higher up at $2,000 per ounce.

The price of gold is balanced between conflicting market forces, supported by risk aversion sentiment but pushed down by high dollar and real yields. 

Increased risk aversion sentiment due to the war in Ukraine has boosted gold prices over the past few months. As however, the crisis drags on, and risk sentiment is slowly returning to markets, undermining gold price. On Monday, Russia bombed Kyiv for the first time in weeks, raising fears that the crisis is headed towards major escalation. Rising geopolitical tensions worked in favor of safe-haven assets, increasing the dollar’s appeal as an investment. Gold is also considered a safe-haven asset, but the dollar has been outperforming its rivals.

As the dollar and US bond yields rise, competing assets, such as gold, become less appealing as an investment. The dollar rallied on Monday on renewed risk-aversion sentiment, with the dollar index climbing above 102.4. Bond yields also rose, with the US 10-year treasury note yielding above 3.0%. Real yields compete directly with gold, which is a non-interest-bearing asset, and their rise puts pressure on the price of gold. 

High inflation rates are also known to support the price of gold, which is often used as an inflation hedge, and with global inflationary pressures increasing, the gold price is boosted. This week, US CPI inflation data are scheduled to be released on June 10th and may affect the gold price.

Stalling global economic growth also gives rise to fears of recession, further supporting the price of gold. Concerns about the state of the economy in China, after the extensive Covid lockdowns in Shanghai and other cities, also boost the gold prices.

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Written by:
Myrsini Giannouli

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