Gold touches key support as dollar strengthens

Gold prices plummeted on Tuesday, falling to the $1,700 per ounce support level. If gold prices continue to decline, further support may be found at the yearly low near $1,681 per ounce, while 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. This week, mounting fears of an energy crisis in Europe reduced risk appetite, providing support for safe-haven assets. 

The dollar, however, has been outperforming competing assets. The dollar continued gaining strength on Tuesday, as the dollar index was catapulted to a fresh 20-year high of 110.5. US Treasury yields also, climbed, with the US 10-year bond yield climbing above 3.3%. 

Fed rhetoric remains firmly hawkish, indicating that the Fed is committed to increase interest rates until inflation has been brought under control. Markets are pricing in a significant Fed rate hike for September, as market odds are leaning towards a 75-bp rate hike.

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. 

This week, the ECB Monetary Policy meeting on the 8th may affect gold prices, as well as Federal Reserve Jerome Powell’s speech on the same day.

Several FOMC Members are due to deliver speeches on Wednesday, which may affect dollar and gold prices, ahead of the Fed policy meeting in September. 

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Written by:
Myrsini Giannouli

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