Gold prices dip as US dollar rallies

Gold prices were under pressure by the dollar’s rally on Tuesday, dipping below $2,320 per ounce. If gold prices rise, resistance may be encountered near $2,368 per ounce, while if gold prices decline, support may be encountered near $2,295 per ounce. 

Gold prices have been typically directed by the dollar’s movement, as the competing gold typically loses appeal as an investment when the dollar rises. The dollar edged higher on Tuesday and the dollar index rose to 105.6. US treasury yields also gained strength, with the US 10-year bond yielding 4.25%.  

Gold prices have experienced a meteoric rise in the past few months and are trading in overbought territory. Geopolitical tensions raise the appeal of safe-haven assets boosting gold prices. Concerns that the crisis in the Gaza area may spread to neighboring countries are raising demand for safe-haven assets keeping gold prices high. Israel threatens to declare an all-out war with Hezbollah, which will destabilize the region further.

Gold prices are affected by central banks’ interest rates. A restrictive monetary policy hinders economic growth lowering the global economic outlook and putting pressure on gold prices. The US Federal Reserve kept interest rates unchanged at its policy meeting in June, within a target range of 5.25% to 5.50%, as expected. 

Odds of a Fed rate cut in September are currently around 70%, while a rate cut by November is fully priced in. The uncertainty around the US Fed rate outlook is causing volatility in gold prices. 

US Core PCE Price index data due on Friday are especially important this week. This is the Fed’s preferred inflation gauge and is likely to affect gold prices. Analysts are predicting that Friday’s data will show a drop in the Core PCE Price index for May, which may spur the Fed to start lowering interest rates.

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Written by:
Myrsini Giannouli

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