Gold prices edge lower on signs of further economic tightening

Gold prices gained strength in early trading on Monday, reaching $1,798 per ounce, but dropped below $1,785 per ounce later in the day. If gold prices decline, support may be found near $1,765 per ounce, while resistance may be encountered near $1,810 per ounce.

The dollar index edged lower in early trading on Monday, dropping as low as 104.1, but gained strength during the day on global recession concerns, climbing to 104.8. US Treasury yields rose after plummeting last week, with the US 10-year bond yielding almost 3.6%. Gold prices have been affected largely by US treasury yields lately, as these reflect Fed rate hike expectations. 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. 

Three major Central Banks, the Fed, the ECB, and the BOE raised interest rates last week. Even though the rate hikes were already priced in by markets, the wave of fiscal tightening reignited global recession concerns. In addition, ECB President Christine Lagarde delivered a decisively hawkish speech, stating that interest rates need to rise significantly to combat Eurozone inflation. ECB interest rate raise expectations rose significantly, causing gold prices to plummet.

This week, markets will still be digesting last week’s major news and the week is light on fundamentals ahead of the Christmas holiday. The outcome of the BOJ policy meeting on Tuesday may cause fluctuation in gold prices. 

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Written by:
Myrsini Giannouli

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