Gold gains as US dollar, yields collapse

Gold prices spiked upwards on Tuesday, climbing to $1,660 per ounce, as the US dollar and yields plummeted. 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 around 1,683 per ounce and higher at $1,729 per ounce.

The dollar fell heavily on Tuesday, on weak US economic data. The dollar index plummeted from above 112 to below 111 within the day. US Treasury yields also declined, failing to provide support for the dollar, with the US 10-year bond yield dropping below 4.1%.

No FOMC members’ comments are expected this week, as a black-out period started on Saturday, preventing further comments until the central bank’s next policy meeting in November. Without the fortifying effect of hawkish Fed comments, the dollar becomes more vulnerable to the release of US economic activity and health indicators.

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. Rampant US inflation has raised expectations of another steep rate hike at the Fed’s next policy meeting in November, putting pressure on gold prices. The US Central Bank has increased interest rates by a total of 300 basis points this year, bringing its benchmark interest rate to 3.25%. Another 75-bps rate hike is expected at the Fed’s next monetary policy meeting in November and has already been largely priced in by markets. Expectations of sharp rate hikes, boost dollar prices at the expense of competing assets, such as gold. 

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Written by:
Myrsini Giannouli

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