Gold prices edge higher as the dollar weakens

Gold prices edged higher on Tuesday, rising to $2,003 per ounce as the US dollar weakened. Gold prices rose to multi-month highs of $2,030 per ounce last week, boosted by decreased rate hike expectations. If gold prices increase, resistance may be encountered near $2,032 per ounce, while if gold prices decline, support may be found near $1,934 per ounce. 

The recent crisis in the banking sector caused risk sentiment to plummet, raising the appeal of safe-haven assets. 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. The dollar weakened on Tuesday ahead of Wednesday’s CPI data, with the dollar index dropping to the 102.1 level. US Treasury yields remained stable, with the US 10-year bond yielding approximately 3.42%. 

The precarious state of the banking sector has derailed the Federal Reserve’s plans for fighting inflation. The Federal Reserve raised interest rates by only 25 basis points at its meeting in March, bringing the benchmark interest rate to a target range of 4.75% to 5.00%. 

There is a lot of uncertainty and speculation on what the Fed is going to do at its next meeting in May as concerns about a banking sector meltdown remain high. Market odds this week moved in favor of another 25-basis point rate rather than a pause in rate hikes. 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. 

High volatility in dollar price is expected on Wednesday as the much-anticipated US CPI data will be released. US Consumer Price Index is forecast to decrease to 5.2% year-on-year in March from 6.0% in February. Core CPI is seen little change around 5.5% year-on-year. This week’s inflation data may be the deciding factor for the Fed’s next rate hike. The minutes of the latest Fed meeting is also scheduled to be released on Wednesday and may provide further insight into the Fed’s policy direction.

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Written by:
Myrsini Giannouli

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