Gold dips as the dollar rallies

Gold prices plummeted on Thursday, dropping to $1,922 per ounce. If gold prices continue to increase, resistance may be encountered near $2,000 per ounce, while if gold prices decline, support may be found near $1,896 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 rallied on Thursday, as the US economy showed signs of recovery and the dollar index climbed above the 102 level. US Treasury yields also edged marginally higher, with the US 10-year bond yielding approximately 3.46%. 

Advanced quarterly GDP released on Thursday revealed that the US economy is expanding at a higher rate than anticipated. US GDP for Q4 of 2022 grew by 2.9% against expectations of a 2.6% growth. The US is likely headed for an economic ‘soft landing’ and recession concerns ease. It is as yet uncertain how the economic recovery will affect Fed rate hikes and a lot of hinges on the PCE inflation indicator on Friday. Markets reacted favorably to the release of robust economic data, however, and the dollar strengthened on Thursday, pushing gold prices down.

US inflation is cooling, however, providing support for gold prices. US PPI data declined by 0.5% in December, versus estimates of a 0.1% drop. US headline inflation also dropped to 6.5% year-on-year in December from 7.1% in November. Cooling price pressures may give the US Federal Reserve some leeway towards scaling back its interest rate increases, boosting gold prices. 

Increases in central banks’ interest rates put pressure on gold prices since assets yielding interest become a more attractive investment than gold as interest rates rise. As the Fed and other central banks start to scale back their aggressive rate hiking, gold prices surge. 

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. Even though inflation rates remain high, signs of cooling price pressures have reduced rate hike expectations, providing support for gold prices. Gold prices are approaching overbought territory though, as they trade close to levels reached only after the crisis in Ukraine started last year.

TRADE GOLD

The content provided in this material and/or any other material that this content is referred to, whether it comes from a third party or not, is for information purposes only and shall not be considered as a recommendation and/or investment advice and/or investment research and/or suggestions for performing any actions with financial products or instruments, or to participate in any particular trading strategy and cannot guarantee any profits. Past performance does not constitute a reliable indicator of future results. TopFX does not represent that the material provided here is accurate, current, or complete and therefore shouldn't be relied upon as such. This material does not take into account the reader's financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of TopFX, no reproduction or redistribution of the information provided herein is permitted.

Written by:
Myrsini Giannouli

Share the article: