Gold price supported by record-high US inflation

Gold price rose on Tuesday, climbing up to $1,977 per ounce. If the price of gold decreases, support may be found near $1,893 per ounce and further down at 1,877 per ounce, while resistance may be found at around $2,000 per ounce.

The price of gold has been driven by conflicting market forces over the past weeks. On one hand, gold is supported by intensifying tensions between Russia and Ukraine, as well as by new western sanctions on Russia. On the other hand, the gold price is undermined by increasingly hawkish Fed policy, which boosts the dollar and real yields.

Early on Tuesday, gold price was steady ahead of the release of the US inflation data. US headline CPI data climbed to 8.5%, showing that inflation rates in the US have hit a 40-year high. The release of the inflation data bolstered the dollar, but also supported the price of gold, which benefits from rising inflation rates. 

Concerns about the state of the economy in China, after the fresh rise of Covid cases and the lockdown in Shanghai, have also been boosting the price of gold.

Gold price, however, has been weighed down by the rising dollar and strong US yields. Increasingly hawkish Fed rhetoric has been driving USD price up, as market participants scan Fed members’ statements to gain insight into the Fed’s future direction. The dollar has been climbing, with the dollar index rising above the 100 level on Tuesday, as markets are pricing in a steep rate hike of 50 base points at the Fed’s next policy meeting in May. 

Global bond yields have been on the rise over the past few days, with yields climbing across the US treasury curve. US treasury yields continued climbing on Tuesday, with the 10-year treasury yields climbing to 2.8% for the first time since 2019, as investors anticipate a more aggressively hawkish Fed policy. Real yields compete directly with gold, which is a non-interest-bearing asset, and their rise puts pressure on the price of gold.

Gold’s safe-haven status supports its price, as reports of violent Russian attacks against Ukraine and new sanctions on Russia drive investors away from riskier assets. The conflict in Ukraine has triggered a risk-aversion sentiment, propelling the price of gold to $2,050 per ounce last month. 

Sanctions against Russia have been driving commodities up, especially energy-related commodities, contributing to rising inflation. The price of gold benefits from rising inflation, since it is often used as an inflation hedge. The US announced new sanctions last week, targeting Russia’s largest financial institutions to increase economic pressure on Russia. The EU also announced a new round of sanctions targeting Russian banks, and oligarchs and even banned coal imports with an estimated total worth of €4bn a year. 

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Written by:
Myrsini Giannouli

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