Gold price tumbles as US yields rally

Gold price crashed on Thursday, falling as low as $1,875 per ounce, and is currently testing the $1,877 per ounce support. If the price of gold decreases, support may be found further down at $1,782 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 has been driven by conflicting market forces over the past weeks and balances between increased risk-aversion and rising yields. Gold is supported by increased risk-aversion sentiment arising from the war in Ukraine. Gold price is undermined by increasingly hawkish Fed policy though, which boosts the dollar and real yields. 

The rising dollar and US yields have put pressure on the price of gold over the past couple of weeks. On Wednesday however, the dollar fell sharply following the Fed monetary policy meeting, with the dollar index falling to 102.5. The dollar declined, even though the Fed raised its benchmark interest rate by 50 base points, its highest rate hike in 22 years. Markets had fully priced in the 50 base point rate hike and were anticipating a steeper rate hike, either in the current meeting, or one of the next monetary policy meetings. Fed Chair Jerome Powell though, dashed investors’ expectations by announcing that a 75 bp rate hike was not under consideration in the Fed’s plans. The market appeal of the dollar fell following Powell’s statement, boosting the appeal of other safe-haven assets. 

Markets had time to absorb the Fed policy announcement on Thursday, driving the dollar and US yields back up. US yields have been boosted by a tightening in the Fed’s monetary policy, with the US 10-year treasury note rising to 3.1% again on Thursday. 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 the ongoing crisis between Russia and Ukraine drives investors away from riskier assets as global economic growth is stalled. Continued Russian hostilities against Ukraine have increased risk-aversion sentiment, providing support for gold. The situation between Russia and Ukraine continues to escalate, as Russian President Vladimir Putin threatens about using nuclear weapons, while he cuts off the gas supply to Poland and Bulgaria. Even though risk-aversion drives investors towards safe-haven assets, the dollar has been surpassing other assets in popularity, decreasing the appeal of gold.

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

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Written by:
Myrsini Giannouli

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