Gold rallies on the declining dollar

Gold prices climbed on Wednesday as the dollar deflated, rising 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.

The dollar, which had been trading in overbought territory, retreated on Wednesday. The dollar was volatile on Wednesday with the dollar index moving above 114.5 early in the day but sliding back to below 113 later in the day. US Treasury yields were similarly affected, with the US 10-year bond yield dropping from above 4.0%, its highest value since 2007, to below 3.8%.  

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, stating that the Fed is determined to curb inflation even at the expense of economic growth. 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. 

Gold prices are supported by increased risk aversion sentiment. Russian President Vladimir Putin has announced the partial mobilization of Russian military reserves from civilian conscripts. Putin has also renewed threats to halt energy exports and threatened western allies with nuclear action. 

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Written by:
Myrsini Giannouli

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