Dollar’s rally puts pressure on gold prices

Gold prices were under pressure on Thursday as the rivaling dollar gained strength and gold dropped to $2,300 per ounce. If gold prices rise, resistance may be encountered near $2,390 per ounce, while if gold prices decline, support may be encountered near $2,280 per ounce. 

Gold prices have been typically directed by the dollar’s movement, as the competing gold typically loses appeal as an investment when the dollar rises. The dollar plummeted after US inflation showed signs of cooling on Wednesday and the index dropped to 104.7. The dollar rallied on Thursday, however, and the dollar index climbed back to 105.2 as markets had time to digest the Fed’s decision, putting pressure on gold prices. However, US treasury yields continued to decline, with the US 10-year bond yield yielding 4.25%.

US CPI data released on Wednesday showed that disinflation in the US is finally progressing, putting pressure on the dollar and boosting gold prices. Headline inflation eased to 3.3% year-on-year in May from 3.4% in April, dropping below expectations of a 3.4% print.

Gold prices are affected by central banks’ interest rates. A restrictive monetary policy hinders economic growth lowering the global economic outlook and putting pressure on gold prices. As expected, the US Federal Reserve kept interest rates unchanged at its policy meeting on Wednesday, within a target range of 5.25% to 5.50%. 

Odds of a rate cut in September rose above 70% this week on easing US inflationary pressures, propping up gold prices. The uncertainty around the US Fed rate outlook is causing volatility in gold prices. 

Gold prices have experienced a meteoric rise recently and are trading in overbought territory. Geopolitical tensions raise the appeal of safe-haven assets boosting gold prices. Concerns that the crisis in the Gaza area may spread to neighboring countries are raising demand for safe-haven assets keeping gold prices high. 

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Written by:
Myrsini Giannouli

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