Gold prices steady as markets await US inflation

Gold prices remained steady on Tuesday, trading sideways with low volatility as markets await the US inflation print on Thursday. On Tuesday, gold tested the $1,877 per ounce resistance but failed to cross that threshold. If gold prices continue to increase, further resistance may be encountered near $2,000 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 remained steady on Tuesday, ahead of the US inflation report on Thursday. The dollar index oscillated with low volatility around the 103.2 level. 

US Treasury yields gained a little strength on Tuesday on marginally hawkish Fed rhetoric, with the US 10-year bond yielding 3.62% to 3.52%. 

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. Several major Central Banks, such as the Fed, the ECB, and the BOE raised interest rates considerably in the past year. A worldwide wave of fiscal tightening has been driving gold prices down.

On Tuesday, Federal Reserve Chairman Jerome Powell stressed that the Fed will have to make tough decisions to bring US inflation down. The Fed Chair, however, carefully avoided commenting directly on the central bank’s monetary policy outlook, turning market attention to the US inflation report later in the week. US CPI data are scheduled to be released on Thursday and are this week’s most highly anticipated fundamentals, as they may influence the Fed’s monetary policy.

Increased global recession concerns, however, raise the appeal of gold as an investment. In China, prolonged Covid lockdowns have significantly affected the economy. A diminishing economic outlook may force central banks around the world to pivot to a more dovish fiscal policy. Even though inflation rates remain high, signs of cooling price pressures have reduced rate hike expectations, providing support for gold prices.

Gold prices surge as the Fed and other central banks start to scale back their aggressive rate hiking. Gold has been in a bullish trend for the last couple of months, which is likely to continue if the Fed signals a pause in raising interest rates.

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Written by:
Myrsini Giannouli

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