Gold supported by weakening US dollar

Gold prices remained steady on Tuesday, trading around the $2,360 per ounce level. If gold prices rise, resistance may be encountered near $2,400 per ounce, while if gold prices decline, support may be encountered near $2,320 per ounce. 

China's central bank, the People’s Bank of China has halted gold purchases for the second consecutive month. The Bank of China has been buying gold over the last 18 months and the sudden absence of an important buyer has been driving gold prices down. 

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 retreated on Tuesday and the dollar index fell below 105.0. US treasury yields remained steady, with the US 10-year bond yielding approximately 4.28%.         

Gold prices are affected by central banks’ interest rates. A restrictive monetary policy hinders economic growth lowering the global economic outlook and putting pressure on gold prices. The US Federal Reserve kept interest rates unchanged at its policy meeting in June, within a target range of 5.25% to 5.50%, as expected. 

The uncertainty around the US Fed rate outlook is causing volatility in gold prices. Fed chair Jerome Powell’s dovish comments put pressure on the dollar last week, boosting gold prices. Powell stated that significant progress has been made on disinflation, hinting at a rate cut in September. Odds of a Fed rate cut in September are approximately 75% but are fluctuating widely. The uncertainty around Fed rate expectations will likely continue in the coming months causing volatility in gold prices. 

Gold prices have experienced a meteoric rise in the past few months and are trading in overbought territory. Geopolitical tensions 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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