Gold climbs as dollar retreats

Gold prices rose on Monday, as the dollar weakened, touching $1,700 per ounce. If gold prices decline, support may be found at $1,681 per ounce and further down 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 resumed its descent on Monday, as the dollar index fell below the 112 level. US Treasury yields also fell heavily on Monday, with the US 10-year bond yield dropping below 0.365%, after reaching 15-year highs of 4.0% last week.  

Market sentiment has been uncertain in the past few weeks, causing volatility in the gold price. Early last week risk-off sentiment propelled the dollar to fresh 2-year heights and gold retreated to its lowest level since April 2020. The dollar had been trading in overbought territory and retreated towards the end of the week, however, boosting gold prices. The BOE’s decision last week to buy bond yields also provided support for gold prices, as demand for the metal increased. The BOE aims to stem the sell-off in the UK gilt market by buying long-dated gilts, which have been strongly affected by repricing.  

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 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.

In its latest monetary policy meeting, the US Fed raised its interest rate by 75 basis points. Rampant US inflation has raised expectations for another steep rate hike last week. Last week, Core PCE Price Index, the Fed’s favorite inflation gauge, increased 0.6% month-on-month, compared to a forecast of 0.5%, with the annual reading climbing to 4.9%. Odds of another steep rate hike at the Fed’s next policy meeting in November increased, putting pressure on gold prices.

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Written by:
Myrsini Giannouli

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