Gold price balanced between conflicting market forces

Gold price was steady on Wednesday, exhibiting low volatility, as the dollar firmed. Gold traded sideways on Wednesday, fluctuating around the $1,852 per ounce level. If the price of gold decreases, support may be found at $1,786 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. 

As the dollar and US bond yields rise, competing assets, such as gold, become less appealing as an investment. The dollar firmed on Wednesday, with the dollar index remaining above 102.5. Bond yields also remained high, with the US 10-year treasury note yielding above 3.0%. Real yields compete directly with gold, which is a non-interest-bearing asset, and their rise puts pressure on the price of gold. 

Increased risk aversion sentiment due to the war in Ukraine has boosted gold prices over the past few months. As however, the crisis drags on, and risk sentiment is slowly returning to markets, undermining gold price. Rising geopolitical tensions work in favor of safe-haven assets, increasing the dollar’s appeal as an investment. Gold is also considered a safe-haven asset, but the dollar has been outperforming its rivals.

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 boosted. This week, US CPI inflation data are scheduled to be released on June 10th and may affect the gold price.

High inflation, however, is a two-edged sword for the price of gold, as it increases the chances of Central Banks raising their interest rates, which reduces the appeal of gold. The ECB’s interest rate announcement on Thursday may cause volatility in the price of gold.

Stalling global economic growth also gives rise to fears of recession, further supporting the price of gold. Concerns about the state of the economy in China, after the extensive Covid lockdowns in Shanghai and other cities, also boost the gold price.

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Written by:
Myrsini Giannouli

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