Gold dips on monetary policy tightening

Gold prices slipped on Wednesday, trading below the $1,700 per ounce key level, moving close to a yearly low. 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 steadied on Wednesday, with the dollar index firming at the 107 level. The dollar had spiked last week, boosted by soaring US inflation rates, with the dollar index rising above 109.2. Global recession concerns also increased the appeal of the safe-haven dollar, catapulting its price to 20-year highs last week. This week the dollar has pulled back from last week’s highs, however, as it had been trading in overbought territory. 

US Bond yields remained firm on Wednesday, 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. 

Global recession fears have sparked a risk-aversion sentiment, boosting safe-haven assets in the past few weeks. 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.

An increasing number of major Central Banks are moving towards a tighter fiscal policy. After the Bank of Canada hiked its interest rate by 100 base points, other banks are also expected to follow soon, dampening the appeal of gold. A Fed rate hike of at least 75 bps is priced in by markets this month, putting pressure on the gold price. The ECB expected to raise its interest rate by at least 25 bps on Thursday, which may push gold prices further down. The BOE is also moving in a more hawkish direction, reportedly considering a rate hike of up to 50 bps. 

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Written by:
Myrsini Giannouli

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