Gold prices mirror dollar volatility

Gold prices seesawed on Thursday, mirroring dollar prices. Gold prices fell to $1,642 per ounce in early trading but rallied later in the day rising to $1,670 per ounce. 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 1,735 per ounce and higher at $1,765 per ounce.

The dollar experienced high volatility on Thursday, with the dollar index catapulting to 113.8 after the release of the US CPI data, but dropping to 112.2 soon afterward. US Treasury yields also seesawed following the release of the inflation data, with the US 10-year bond yielding above 4.0% immediately after and dropping almost to 3.9% later on.  

US inflation rose by 0.4% every month in September exceeding expectations according to Thursday’s CPI data. Annual inflation reached 8.2%, dropping only slightly from last month’s 8.3%. The release of the CPI report brought market volatility, with the US dollar and gilds shooting upwards immediately after, and stocks plummeting. Increased price pressures boosted the dollar and increased risk aversion sentiment, as rising inflation increases the odds of another steep Fed rate hike. The tide turned soon afterward though, as many market participants were anticipating high inflation data and the results had largely been priced in. 

US Monthly PPI and Core PPI data for September released on Wednesday showed that price pressures continue to increase, putting extra strain on the Federal Reserve to continue with its policy of monetary tightening. 

Global recession concerns are causing high markets. Sharp rate hikes and continuous fiscal tightening run the risk of tipping some of the world’s leading economies into recession. World Bank President David Malpass and International Monetary Fund Managing Director Kristalina Georgieva warned earlier this week of a growing risk of global recession while stressing the need to bring inflation under control.

Continued hawkish Fed rhetoric has rekindled expectations of sharp rate hikes, boosting dollar prices at the expense of competing assets, such as gold. 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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