Gold prices sink after strong US data

Gold prices continued to decline on Thursday, dropping briefly below the $1,900 per ounce support level but paring some of their losses later in the day and climbing back to $1,908 per ounce. If gold prices increase, resistance may be encountered near $1,939 per ounce, while if gold prices decline, support may be found near $1,900 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. The dollar rallied on Thursday and the dollar index rose to the 103.4 level. US Treasury yields surged, with the US 10-year bond yielding 3.85%.

Stronger-than-expected U.S. economic data boosted the dollar on Thursday. Final US GDP data on Thursday showed that the US economy expanded by 2.0% in the first quarter of the year. A strong economic backdrop, combined with high inflationary pressures increases the odds of another rate hike in July.  

Fed Chair Jerome Powell, speaking on Thursday at the Conference on Financial Stability in Spain, reinforced this notion. Powell stressed that US inflation is still at twice the Fed’s 2% target and warned that getting inflation back to target still has a long way to go. Powell stated that after a pause in rate hikes, the Fed is ready to resume a moderate pace of interest rate decisions.

Powell, speaking at the ECB Central Bank Forum in Sintra, Portugal, on Wednesday, warned that further tightening should be expected. Powell stressed that a pause in June was required to assess the progress of US inflation but stated that consecutive rate hikes may be resumed if needed. Powell added that the majority of FOMC members are in favor of two more rate hikes this year. Powell’s unwavering hawkish stance boosted the dollar on Wednesday, putting pressure on gold prices.

The U.S. Federal Reserve kept its interest rate steady at its June policy meeting for the first time in well 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. 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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