Gold rally halted on market turmoil

Gold prices’ rally was halted on Thursday on overall market turmoil. Gold fell to $1,642 per ounce in early trading but recovered later in the day, trading close to the $1,660 per ounce level. If gold prices continue to decline, support may be found at the 2020 low near $1,441 per ounce. Resistance may be found at around 1,740 per ounce and higher up at $1,765 per ounce.

Market sentiment has been uncertain throughout the week. Markets participants have been pondering the effects of the Fed’s rate hike last week. Earlier this week, hawkish Fed rhetoric propelled the dollar to fresh 2-year heights. The BOE’s decision to buy bond yields on Wednesday destabilized markets further.

The dollar had been trading in overbought territory and retreated on Thursday, despite robust US economic data and hawkish Fed rhetoric. The dollar index dropped on Thursday, from 113.7 early in the day to almost 112. US Treasury yields also declined, with the US 10-year bond yield dropping from above 3.8%, after reaching 15-year highs earlier in the week.  

Gold prices are driven down by the shift of most major Central Banks toward a tighter monetary policy to combat rising inflation rates. Assets yielding interest become a more appealing investment compared to gold as interest rates rise. The US Fed raised its interest rate by 75 basis points last week and Federal Reserve Chair Jerome Powel has raised expectations for future rate hikes. The ECB has performed its largest ever rate hike, raising interest rates by 75 basis points, pushing gold prices down and ECB officials hint at another steep rate hike at the ECB’s next meeting in October. The UK, Switzerland, and Canada have also tightened their monetary policies recently.

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Written by:
Myrsini Giannouli

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