Gold balances between increased risk-aversion and rising yields

Gold price was steady on Tuesday, fluctuating slightly around the $1,900 per ounce level. If the price of gold decreases, support may be found at $1,893 per ounce and further support may be encountered at 1,877 per ounce, while resistance may be found at around $2,000 per ounce.

The price of gold has been driven by conflicting market forces over the past weeks and balances between increased risk-aversion and rising yields. Gold is supported by increased risk-aversion sentiment arising from the war in Ukraine. Gold price is undermined by increasingly hawkish Fed policy though, which boosts the dollar and real yields.

The rising dollar and US yields put pressure on the price of gold. The dollar has gained strength these past few weeks, with the dollar index rising above the 101 level, spurred by hawkish Fed rhetoric. Increasing odds of a sharp rate hike of at least 50 base points at the Fed’s next monetary policy meeting in May has been boosting the market appeal of the dollar against other safe-haven assets. 

Last week, the rise in US real yields, pushed the gold price down to a monthly low. Real yields have been boosted by a tightening in the Fed’s monetary policy, with the 10-year real treasury yield hitting positive territory. Real yields compete directly with gold, which is a non-interest-bearing asset, and their rise puts pressure on the price of gold.

Gold’s safe-haven status supports its price, as the ongoing crisis between Russia and Ukraine drives investors away from riskier assets as global economic growth is stalled. Sanctions against Russia and increasing energy costs have been driving commodity prices up and contributing to rising inflation, which is hitting record highs in the US, the EU, the UK, and many other countries. Global inflationary pressures support gold price since it is often used as an inflation hedge.

Concerns about the state of the economy in China, after the fresh rise of Covid cases and the lockdown in Shanghai, also boost the price of gold.

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Written by:
Myrsini Giannouli

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