Gold prices are volatile as the dollar price fluctuates

Gold prices mirrored dollar prices on Tuesday, exhibiting high volatility as the dollar fluctuated throughout the day. Gold prices dipped early on Tuesday, testing the support near $1,942 per ounce, but rallied later in the day, rising to $1,950 per ounce. If gold prices increase, resistance may be encountered near $1,982 per ounce, while if gold prices decline, support may be found near $1,942 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 extended gains on Tuesday, with the dollar index touching the 102.3 level before dropping back to 101.9 later in the day. US Treasury yields also gained strength, with the US 10-year bond oscillating around the 4.04% level.

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. The U.S. Federal Reserve raised interest rates by 25 basis points last week to a target range of 5.25% to 5.50%, the highest level in 22 years. 

The Fed’s forward guidance remained the same, stressing that future steps would be determined by several parameters, including the cumulative effect of tightening on the economy, the progress of inflation, as well as other financial developments. The Fed’s message was ambiguous, aiming to give the central bank flexibility towards adjusting its future monetary policy and adopting a data-dependent approach. 

There is considerable doubt on whether the Fed will continue hiking rates after last week’s rate increase. Cooling US inflation rates have shifted market expectations towards a less hawkish direction. Markets now see the Fed peak rate approaching, boosting gold prices.

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Written by:
Myrsini Giannouli

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