Gold price supported by weakening dollar

Gold price was stable on Monday, trading near $1,840 per ounce, benefiting from the dollar’s weakness. 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 slipped on Monday, which was a Bank Holiday in the US, with US Stock Markets closed and global stocks slow. The dollar index fell to 104.5, while US Bond yields were closed at Friday’s prices, with the US 10-year treasury note yielding above 3.2%. Real yields compete directly with gold, which is a non-interest-bearing asset, and their rise puts pressure on the price of gold. 

Gold price on Monday balanced between a weakening dollar and a strong Fed tightening policy. Last week, the US Federal Reserve voted to raise its benchmark interest rate by 75 points, taking aggressive action against inflation. The dollar had been overbought ahead of the Fed meeting in anticipation of a hawkish outcome and the Fed’s announcement fell within market expectations driving the dollar down and propping up gold prices. 

Increased risk aversion sentiment due to the war in Ukraine has boosted gold prices over the past few months. As however, the crisis drags on, and risk sentiment is slowly returning to markets, undermining gold price. 

In addition, stalling global economic growth 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 prices.

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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