Gold prices fell on Tuesday, approaching their lowest level since mid-February, as the prospect of a rate hike by the US Federal Reserve and a stronger greenback dampened the attractiveness of bullion.
Gold prices have dropped drastically this week from $1,998 to $1,860 per ounce. The bearish external market factors of a strong US dollar near a 20-year high and higher US Treasury yields hit precious metals early this week.
The US central bank’s Federal Open Market Committee is likely to raise interest rates by 0.5 per cent this week, amid the highest inflation levels in 40 years.
Higher interest rates will put pressure on gold, as will a stronger dollar, according to Chhea Chhayheng, business manager at G-link.
Gold faces short-term downside risks, with a target range of $1,810 to $1,790, according to Reuters.
The strengthening dollar is making gold less appealing to global investors, while benchmark 10-year Treasury yields touched three per cent for the first time since December 2018, a significant psychological milestone, said Reuters.
To counter rising inflation and high labour costs, US policymakers appear set to deliver a series of aggressive rate hikes at least until the summer, reported Bloomberg.
Reuters reported that while gold is typically regarded as an inflation hedge, rate hikes will raise the opportunity cost of holding non-yielding bullion.
Technically, gold prices are moving in a downtrend on the daily bar chart.
Bears have the overall near-term technical advantage and gained more power today, while the next near-term downside price objective for bears is pushing futures prices below solid technical support at $1,800, reported Kitco.
The first resistance is seen at $1,883 and then at $1,900, and the first support is seen at a low of $1,853.40 and then at $1,800.