Gold dips as dollar rallies

Gold prices retreated on Thursday, paring some of Wednesday’s gains, as the dollar rallied. Gold dipped again to $1,705 per ounce, trading just above the $1,700 per ounce support level. If gold prices continue to decline, the $1,700 per ounce level may provide support, while further support may be found at the yearly low near $1,681 per ounce. Resistance may be found around 1,765 per ounce and higher up at $1,802 per ounce.

Gold has been retreating, pushed down by the rise of competing assets, such as the dollar and US treasury yields. The dollar remained strong on Thursday, with the dollar index climbing above 110. US Treasury yields were also stable, with the US 10-year bond yielding just below 3.3%.  

The ECB performed its largest ever rate hike on Thursday, raising interest rates by 75 basis points, putting pressure on gold prices. Fed rhetoric propelled the dollar to 20-year highs in the past couple of weeks amidst mounting expectations of a steep Fed rate hike in September. Fed rhetoric remained hawkish this week, although markets perceived FOMC members’ speeches as more cautious.

Fed Chair Jerome Powell delivered a speech on Thursday for the Cato Institute, reiterating the Fed’s commitment to bring inflation down. Powell stated that the US Central Bank would continue raising interest rates until the job is done. Powell’s hawkish speech increased rate hike bets, boosting the dollar. Markets are currently wavering between a 50-bp and a 75-bp Fed rate hike in September.

The pivot of most major Central Banks toward a tighter monetary policy to combat rising inflation rates is putting pressure on the price of gold. Assets yielding interest become a more appealing investment compared to gold, as interest rates rise.

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Written by:
Myrsini Giannouli

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