Gold price benefits from US dollar, US yields weakness

Gold price continued to climb on Tuesday, reaching $1,870 per ounce, as the dollar weakened. If the price of gold decreases, support may be found at $1,782 per ounce, while resistance may be found at around 1,920 per ounce and higher up at $2,000 per ounce.

The price of gold is balanced between conflicting market forces, supported by risk aversion sentiment but pushed down by high dollar and real yields. 

The risk-aversion sentiment was renewed on Tuesday, driving stock markets and high-risk assets down. Gold prices benefited from the market sell-off, as traders moved towards safe-haven assets. Even though the dollar has been the most appealing safe-haven asset to market investors for the past couple of months, it has begun to lose its strength since last week.

The USD, which had been trading in overbought territory, has been slipping since last week and continued to decline on Tuesday, with the dollar index falling to the 101.7 level. Bond yields remained stable on Monday, with the US 10-year treasury note yielding close to 2.7%. Real yields compete directly with gold, which is a non-interest-bearing asset, and their rise puts pressure on the price of gold. The decline of the USD and US bond yields makes competing assets, such as gold, more appealing as an investment.

High inflation rates are also known to support the price of gold, which is often used as an inflation hedge, and with global inflationary pressures increasing, the gold price is once again on the rise. Stalling global economic growth also gives rise to fears of recession, boosting the price of gold. Concerns about the state of the economy in China, after the extensive Covid lockdowns in Shanghai and other cities, also support the gold price.

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Written by:
Myrsini Giannouli

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