Gold prices are uncertain as the dollar remains strong

Gold prices were volatile on Monday, climbing to $1,930 per ounce in early trading but paring some of their gains later in the day, dropping to $1,921 per ounce. If gold prices increase, resistance may be encountered near $1,933 per ounce, while if gold prices decline, support may be found near $1,893 per ounce.

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. Disappointing US economic data on Monday boosted gold prices early in the day. As the dollar remained strong, however, the gold price’s rally was halted. The dollar gained strength on Monday, and the dollar index rose above the 103 level. US Treasury yields remained strong, with the US 10-year bond yielding 3.86%.

The U.S. Federal Reserve kept its interest rate steady at its June policy meeting for the first time in over a year. Fed officials have voted to keep the central bank’s interest rate at a target range of 5.00% to 5.25%. The Fed has signaled that its tightening cycle is not over yet and that its peak rate might be higher than anticipated.

Fed Chair Jerome Powell reinforced this notion, stressing that US inflation is still at twice the Fed’s 2% target, and warned that the process of getting inflation back to target still has a long way to go. Powell hinted that consecutive rate hikes may be resumed if required, stating that the majority of FOMC members are in favor of two more rate hikes this year. Powell’s unwavering hawkish stance boosted the dollar last week, putting pressure on gold prices.

Expectations of additional monetary tightening boost the dollar, driving gold prices down. Increases in central banks’ interest rates put pressure on gold prices since assets yielding interest become a more appealing investment compared to gold as interest rates rise.

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Written by:
Myrsini Giannouli

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