Gold sinks as the dollar soars

Gold prices tumbled on Wednesday, dipping to $1,957 per ounce. If gold prices increase, resistance may be encountered at the psychological level of $2,000 per ounce, while if gold prices decline, support may be found near $1,951 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 continued its ascent on Wednesday, with the dollar index rising to 103.9. US Treasury yields soared, with the US 10-year bond yield rising to 3.75%. The US dollar and Treasury yields were buoyed on Wednesday by debt default fears, driving gold prices down.   

The ongoing debate around the US debt ceiling is causing economic uncertainty, affecting gold prices. Fears of a US debt default promoted a risk-aversion sentiment in the past couple of weeks, boosting the safe-haven gold. US Treasury Secretary Janet Yellen has warned that the office would not meet all US government obligations by June 1. On Wednesday, Yellen reiterated that the US debt ceiling deadline remains in early June and cannot be extended without the US missing payments. 

House Speaker McCarthy and President Biden started talks on the debt ceiling last week, which were considered to be productive. US President Biden stated that he is confident that he, and House Speaker McCarthy, will agree on the budget. The two leaders have yet to reach an agreement on the US debt ceiling, but negotiations continue as the clock runs down. 

The Federal Reserve signaled a pause in rate hikes last week, causing the dollar to plummet and boosting gold prices. US Federal Reserve Chair Jerome Powell indicated that the US Central Bank may pivot towards a more dovish direction. 

The Federal Reserve raised interest rates by 25 basis points at its monetary policy meeting last week, bringing the benchmark interest rate to a 16-year high target range of 5.00% to 5.25%. Many analysts predict that there is a high probability of rate cuts starting in November. Expectations of a shift to a more dovish policy provide support for gold prices.

The minutes of the latest Fed meeting were released on Wednesday, increasing the odds of a pivot in the Fed’s policy direction. According to the FOMC minutes, several Fed members advocated for a pause in rate hikes during the Fed’s last meeting in May.

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Written by:
Myrsini Giannouli

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