Gold is stable even as the dollar soars

Gold prices remained stable on Monday, after plummeting last week. The dollar’s renewed strength did not cause a fresh collapse in gold prices. Gold traded sideways on Monday, fluctuating around the $1,866 per ounce level. If gold prices continue to increase, resistance may be encountered near $1,950 per ounce, while if gold prices decline, support may be found near $1,825 per ounce.

Gold prices have been predominantly directed by the dollar’s movement, as the competing gold typically loses appeal as an investment when the dollar rises. The dollar rallied at the end of last week and continued to ascend on Monday, as markets had time to digest the Fed’s interest rate decision, with the dollar index rising to 103.5. US Treasury yields also strengthened on Monday, with the US 10-year bond rising to 3.63%.

Increases in central banks’ interest rates put pressure on gold prices since assets yielding interest become a more appealing investment compared to gold as interest rates rise. After a series of aggressive rate hikes last year, the Fed has finally decided to relax its hawkish policy, boosting gold prices. The Federal Reserve raised interest rates by only 25 basis points last week, bringing the benchmark interest rate to a target range of 4.50% to 4.75%. 

Fed Chair Jerome Powell caused a stir in markets, expressing himself as satisfied with the ‘disinflation’ process. Powell emphasized, however, that ongoing rate hikes are appropriate since substantially more evidence is necessary that inflation is under control.

US inflation seems to be cooling, providing support for gold prices. As the Fed and other central banks start to scale back their aggressive rate hiking, gold prices surge. Even though inflation rates remain high, signs of cooling price pressures have reduced rate hike expectations, providing support for gold prices. 

Fed Chair Powell’s speech on Tuesday is one of the most important events of the week and may have an impact on gold prices.

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Written by:
Myrsini Giannouli

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