Gold firms on weakening dollar

Gold prices firmed on Tuesday, as the dollar weakened, trading around the $1,720 per ounce level. 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 retreated on Tuesday, with the dollar index falling to 106.6. 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 Tuesday, 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. 

Gold plummeted last week, hitting a nine-month low and moving close to a yearly low below the $1,700 per ounce psychological level, as the dollar spiked to a 20-year high. 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.

Increasing odds of a steep Fed rate hike this month are 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. Other major Central Banks are also tightening their monetary policy, with the ECB expected to raise its interest rate by at least 25 bps this week.

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Written by:
Myrsini Giannouli

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