Gold price rebounds as treasury yields decline

Gold price rose on Thursday to $1,950 per ounce, following the Fed’s rate hike announcement, after dropping since the beginning of the week. If the price of gold decreases, support may be found near 1,877 per ounce, while resistance may be found at around $2,000 per ounce. 

The Federal Reserve raised its benchmark interest rate by 25 base points on Wednesday, bringing its benchmark interest rate to 0.50%. In the ensuing press conference, Federal Reserve Chairman Jerome Powell signaled that the Fed’s interest rates could reach nearly 2% by the end of the year. Gold prices started declining after the Fed’s announcement, as increased interest rates boost the value of real yields, putting pressure on the price of gold. Later, however, the gold price started climbing, as the Fed’s rate hike had been largely priced in by markets. 

Treasury yields rose across the US treasury chest this week, in expectations that the Fed would tighten its monetary policy. Treasury yields declined on Thursday though, as the Fed’s statement was less hawkish than expected. Real yields compete directly with gold, which is a non-interest-bearing asset, and their rise puts pressure on the price of gold.

During the past few weeks, the gold price has climbed up to $2,050 per ounce, its highest level since the peak of the pandemic, in August 2020. The war in Ukraine has triggered a risk-aversion sentiment, driving investors towards safe-haven assets. Sanctions against Russia have been driving commodities up, especially energy-related commodities, contributing towards rising inflation. The price of gold benefits from rising inflation, since it is often used as an inflation hedge. 

Diplomatic talks between Russia and Ukraine were resumed this week though, sparking hopes of a de-escalation of the conflict, putting pressure on the price of gold. Negotiations have entered a more serious phase, as both sides seem to feel there is room for compromise and for finding a middle ground.

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Written by:
Myrsini Giannouli

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