Hawkish Fed pulls gold down from record highs

Gold prices hit a fresh all-time high of $2,450 per ounce on Monday, then pared some gains dropping to $2,420 per ounce. Gold prices remained steady on Tuesday, oscillating around the $2,420 per ounce level. If gold prices rise, resistance may be encountered again at the all-time high of $2,450 per ounce, while if gold prices decline, support may be encountered near $2,280 per ounce. 

Gold prices have experienced a meteoric rise recently and are trading in overbought territory. Market expectations of Fed rate cuts are fluctuating strongly, causing volatility in gold prices. The US Federal Reserve kept interest rates unchanged at its latest policy meeting, within a target range of 5.25% to 5.50%. 

Renewed rate cut expectations boosted gold prices since the release of the US inflation report last week. Inflationary pressures in the US are easing, which may allow the US Federal Reserve to start cutting interest rates by September. 

Gold prices gained strength on Monday, rising to an all-time high amid uncertainty on the Fed rate outlook. Hawkish Fedspeak, however, put pressure on gold prices later this week. Odds of rate cuts are becoming more moderate, putting pressure on gold prices, as policymakers state that they do not intend to start reducing interest rates until there is more evidence of disinflation. The uncertainty around the US Fed rate outlook is causing volatility in gold prices.

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 remained steady on Tuesday, with the index hovering around the 104.6 level. US treasury yields remained steady, with the US 10-year bond yielding approximately 4.42%.  

China announced stimulus measures to aid its ailing economy last week. Reports of “historic” steps by China to stabilize its property sector boosted gold prices since China is one of the world’s largest markets for gold. 

Geopolitical tensions also 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. 

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Written by:
Myrsini Giannouli

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