Market Overview

Gold has two major abilities. One is that it is traditionally considered to be a safe haven asset that is in high demand during times of elevated risks in the market, rising inflation, and geopolitical uncertainties. The second is that it acts as an anti-dollar indication because gold prices mostly move in the opposite direction to the Dollar. The Dollar itself has become a safe haven asset in recent months as the Federal Reserve (Fed) has risen interest rates along with Treasuries yields. So, gold prices are now more correlated with the Greenback’s moves.

The U.S. Dollar weakened both last week and this week so far, after surging during the first half of May.

On May 23, gold prices rose from $1844 per troy ounce to $1864 and on May 24 the U.S. Dollar continued to scale back  while gold prices rose to $1854 per ounce.

The overall trend for gold was downward amid the strengthening Greenback over recent months. This shows that currently the Dollar is  greatly affecting gold prices while surging inflation is not having such a strong upside effect on it. And there seems to be no contradiction as monetary tightening by the Fed and rising Treasuries yields are set to tackle inflation. Inflation should gradually slow down, and eventually pull gold prices up.

Business activity readings and Fed’s Chair Jerome Powell’s testament on Tuesday may affect gold prices, as well as the Fed’s Federal Open Market Committee (FOMC) Minutes that will be published on May 25. Gold prices may also be swayed by the release of the U.S. GDP on Thursday, that is expected to contract by 1.3% in the Q1 2022, and  the consumer inflation figures to come out on Friday.

All this data may trigger further monetary tightening by the Fed. If the U.S. monetary policymaker continues to raise interest rates and clear off Treasuries and mortgage-backed bonds from its balance sheet, gold prices may tumble to $1800 per ounce. However, any weak U.S. economy data may prompt the Fed to express caution. In this case the yellow metal may continue to rise toward $1890-1920 per ounce.

Disclaimer:

Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.