Strong Dollar and Sooner Rate Hike Bets Cap Gold’s Gain Below $1,800


Gold prices rose on Wednesday but failed to breach the $1,800 per ounce level. The bullion’s gain was capped by a stronger dollar and the expectations that the Federal Reserve would raise interest rates sooner than expected. The greenback was steady near a 16-month high and made gold more expensive for investors using rival currencies. Also, the U.S. 30-year Treasury yields remained close to their highest level in almost a month. It dampened the bullion’s appeal since it raised the opportunity cost of owning the non-interest-bearing metal.

Spot gold is currently trading at $1,792.74 per ounce as of 0810 GMT.

President Joe Biden’s nomination of Fed Chair Jerome Powell for another term raised market expectations that the central bank would normalize monetary policy faster than expected. Those bets strengthened the dollar and sent short-term Treasury yields to their highest level since early 2020. They also sent gold 4.9% down from a five-month peak hit last week.

Powell is considered more hawkish than Lael Brainard, his opponent for the Fed’s top position. Also, one of the investors’ gauges for monetary policy expectations, the Fed funds futures, was priced in a 100% chance that the Fed would raise interest rates by July.

OANDA senior market analyst Jeffrey Halley predicted that gold would not recover above $1,800 unless the 30-year yields shed their gains this week. He argued any rally to be limited to $1,810 in the near term.

DailyFX senior strategist Christopher Vecchio noted a significant bearish technical reversal that ruled out the possibility of a sustained rally. He also mentioned the gold prices’ weekly technical structure quickly eroded. The weekly Slow Stochastics dropped from overbought territory, and the weekly MACD’s upward trend stopped. He added that the IG Client Sentiment Index also indicates that gold prices may continue to fall.

His fellow DailyFX strategist Daniel McCarthy predicted market-priced inflation dips ahead of the holidays in the U.S. He suggested that gold’s price outlook is currently driven by the direction of the dollar. The greenback movement, in turn, is influenced by U.S. yields and the market’s perception of the Fed’s tapering timeline.

He sees possible resistance at the previous highs of $1,877.15 and $1,916.53 and at the pivot points of $1,813.94 and $1,834.14. On the downside, he sees support level at the previous lows of $1,758.93, $1,750.25, $1,721.71 and $1,676.91.

In a related development, the holdings of the largest gold-backed exchange-traded fund in the world, SPDR Gold Trust, grew by 0.6% from 985 tons on Monday to 991.11 tons yesterday. It reflects current market sentiment.