Gold Slips On Dollar Recovery And Fed’s Hawkish Policy Stance

gold and black metal tool

Photo by Jingming Pan on Unsplash

On Wednesday, gold prices slipped as the U.S. dollar recovered from the three-day slide. The firm greenback made the bullion more expensive and less appealing to investors using rival currencies. The higher U.S. Treasury yields also pushed dented the demand for the yellow metal. Another factor working against gold is the Federal Reserve’s aggressive stance against inflation.

Spot gold is currently trading at $1,815.40 per ounce as of 0805 GMT.

The U.S. central bank has already raised interest rates by three-quarters of a percentage point this year. It is also planning half-percentage increases in June and July. Still, Chairman Jerome Powell said yesterday that the Fed would ratchet the benchmark policy rate as needed to kill control inflation. Achieving price stability is an unconditional need, and the central bank will keep tightening monetary policy until inflation goes down in a clear and convincing way.

DailyFX currency strategist Ilya Spivak noted that gold prices have been consolidating since Friday. But the overall direction is downwards to $1,750. The bullion has recently been dependent on rate hikes and policy tightening in the U.S. And those hikes will continue to boost the greenback and push gold prices down.

FXStreet senior analyst Dhwani Mehta agreed that the dollar remains the primary catalyst for the direction of gold prices. And the greenback’s rally is far from over. The robust U.S. core retail sales deepened inflation concerns and bolstered rate hike expectations. And higher interest rates typically result in the appreciation of the dollar.

Mehta said gold prices could test multi-month lows after failing to breach the critical 200-Day Moving Average of $1,836. In addition, the bullion’s 14-day Relative Strength Index is trending lower, indicating further downside. Mehta sees immediate support at $1,800. If gold slips below that level, it could go down to $1,787 and then $1,780. On the upside, the yellow metal needs to close consistently above $1,821.

Michael Boutros, another DailyFX strategist, added that the IG Client Sentiment Index indicates a mixed gold trading bias. He advised traders to reduce portions of short-exposure or lower protective stops if bullion prices close below $1,791.

In a related development, the holdings of the largest gold-backed exchange-traded fund in the world, SPDR Gold Trust, fell to their lowest level in almost two months. It reflects current investor sentiment.

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