Posted 9th May 2022

Ever-Strengthening Dollar Allied to Fed Rate Hikes Keeps Gold Under Pressure

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The strength of the US dollar, which is now trading at its highest level in two years, has brought renewed pressure to gold with the price now hovering around the $1,870 an ounce mark. 

The dollar is proving the haven asset of choice at a time of continued falls on equity markets in the wake of the Federal Reserve’s trajectory of interest rate hikes and now concerns over China’s economic growth due to the ongoing COVID-related lockdown. 

With gold and dollar typically having an inverse correlation, the price of gold has failed to rise even though stock market falls normally produce conditions beneficial to the precious metal due to its safe-haven appeal.

Live Gold Price – $/oz

Given that the dollar has found strength from the Fed’s recent 50 basis points increase of its interest rate and with further hikes expected in the coming months, it is difficult to see where gold can make significant gains in the medium-term. The interest rate increases are presenting dual headwinds for gold as on top of strengthening the US dollar, they are also diminishing the appeal of non-yield bearing assets.

Yet while further gains may prove challenging, the ongoing war in Ukraine will provide strong support for gold with the asset likely to trade in the $1,840-$1,870 range as long as these two elements are the principal drivers for markets.

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