Gold prices steady on the low dollar, yields, volatility

Gold prices were stable on Tuesday, trading near $1,840 per ounce, as the US dollar and yields exhibited low volatility. 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 was stable on Tuesday, exhibiting low volatility, with the dollar index hovering above 104. US Bond yields were also fairly stable, with the US 10-year treasury note yielding just below 3.3%. Real yields compete directly with gold, which is a non-interest-bearing asset, and their rise puts pressure on the price of gold. 

Gold prices balance 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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