Gold climbs as the dollar eases

Gold prices gained strength on Monday as the dollar declined, reaching $1,668 per ounce before paring some of the day’s gains. If gold prices decline, support may be found near $1,614 per ounce and further down at the 2020 low near $1,441 per ounce. Resistance may be found around 1,729 per ounce and higher up at $1,765 per ounce.

The dollar slipped on Monday, with the dollar index dropping to 112, boosting the gold prices. US Treasury yields remained strong, with the US 10-year bond yielding approximately 4.0%.  

Price pressures in the US continue to increase, putting extra strain on the Federal Reserve to continue with its policy of monetary tightening. Sharp rate hikes and continuous fiscal tightening run the risk of tipping some of the world’s leading economies into recession. 

Continued hawkish Fed rhetoric has rekindled expectations of sharp rate hikes, boosting dollar prices at the expense of competing assets, such as gold. Fed rhetoric remains firmly hawkish, with FOMC policymakers Esther George and Mary Daly commenting over the weekend that the US Central Bank may need to step up its rate hikes to combat soaring inflation.

Gold prices are under pressure by the shift of most major Central Banks towards a tighter monetary policy to combat rising inflation rates. Assets yielding interest become a more appealing investment compared to gold as interest rates rise. 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 at the Fed’s next policy meeting in November, putting pressure on gold prices.

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Written by:
Myrsini Giannouli

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