Gold Dips as Rate-Hike Fears Offset Dollar Pullback

Gold bar

Gold prices slipped on Wednesday despite the weaker dollar. The greenback dipped for the fourth consecutive session, which lowered bullion prices for holders of rival currencies. However, higher yields and the anticipated rate hike by the Federal Reserves offset the impact of the dollar. Benchmark U.S. 10-year Treasury yields rose and stayed above 3%. It made raised the opportunity cost of holding gold and dented its appeal.

Spot gold is currently trading at $1,707.92 per ounce as of 0810 GMT.

Stephen Innes, a managing partner at SPI Asset Management, noted the lack of impact of the dollar movement on gold prices. He suggested that gold is not getting the push since the dollar is not reacting to the aggressive rate hike by the European Central Bank (ECB). Also, the Fed’s front-loaded rate hikes dulled gold’s appeal.

The ECB is considering raising rates higher than 50 basis points on Thursday. It would be the central bank’s first interest rate hike in more than ten years. To cushion the impact of higher borrowing costs, the ECB will require indebted countries to stick to the European Commission rules for reforms and budget discipline.

On the technical front, FXStreet analyst Sagar Dua predicted more consolidation. The gold price chart shows the bullion is auctioning in a symmetrical triangle pattern. It signals volatility and the yellow metal benefits from volatility. Dua also mentioned that the 14-day Relative Strength Index hovers in the 40.00-60.00 range. And the 50-day Exponential Moving Average overlaps with gold prices, suggesting further consolidation.

DailyFX strategist Daniel McCarthy added that gold failed to rise despite the weaker dollar. The metal remains in a descending trend channel and a tight range since dropping to $1,697 last week. McCarthy sees immediate support at $1,697 and then $1,677. On the upside, he expects resistance at $1,722, $1,753 and $1,787.

Meanwhile, Reserve Bank of Australia (RBA) Governor Philip Lowe said interest rates could at least double the current levels. He said it is crucial to prevent inflation from becoming a self-fulfilling cycle, feeding through to business and household expectations. The RBA raised interest rates for three consecutive months and is on track to reach near 3.5% by the end of 2022.