Gold price benefits from market uncertainty

Gold price rose above $1,830 per ounce on Wednesday, benefiting from the dollar’s weakness following the Fed monetary policy meeting. If the price of gold decreases, support may be found at $1,786 per ounce, while resistance may be found at around 1,870 per ounce and higher up at $1,920 per ounce.

The dollar index fell below 104.8 on Wednesday though, after the announcement of the Fed interest rate. In a surprise move, the US Federal Reserve voted to raise its benchmark interest rate by 75 points on Wednesday, taking aggressive action against inflation. The dollar had been overbought in the past few days in anticipation of a hawkish Fed meeting and the Fed’s announcement fell within market expectations driving the dollar down. 

Stock markets were volatile on Wednesday, rising after the Fed rate announcement. Bond yields were also volatile on Wednesday, with the US 10-year treasury note yielding approximately 3.4%. 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. However,r the crisis drags on, risk sentiment is slowly returning to markets, undermining gold price. 

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.

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. Rising costs of food and energy have contributed to soaring inflation rates worldwide. 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. 

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Written by:
Myrsini Giannouli

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