Gold prices are under pressure by a rising dollar

Gold prices were under pressure on Thursday as the dollar gained strength. Gold was volatile throughout the day, dropping to $1,830 per ounce. If gold prices increase, resistance may be encountered near $1,847 per ounce, while if gold prices decline, support may be found near $1,773 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. Gold prices dropped near a two-month low in the past few days, weighed down by a stronger dollar and US yields combined with higher rate hike expectations. 

The dollar gained strength on Thursday, supported by robust US labor data, and the dollar index climbed to 105.1. US Treasury yields also gained strength, with the US 10-year bond yield rising above 4.08%. 

US inflation data last week showed that price pressures in the US remain high and are not easing at the pace anticipated, putting pressure on gold prices. The Federal Reserve raised interest rates by only 25 basis points at its February meeting, bringing the benchmark interest rate to a target range of 4.50% to 4.75%. Rate hikes have become less aggressive and may continue at their current pace, but the Fed might raise interest rates for longer than previously expected. Current market odds lean towards further tightening in the upcoming Fed meetings and an increase in interest rates up to 5.25%. Market expectations of the Fed peak interest rate continue to rise on hotter-than-expected US price pressures, pushing gold prices down. Increases in central banks’ interest rates put pressure on gold prices since assets yielding interest become a more appealing investment compared to gold as interest rates rise. 

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Written by:
Myrsini Giannouli

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