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Gold price pushes to $1,850 as U.S. dollar drops 2% from 20-year peak

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(Kitco News) - The gold market has regained another significant psychological level as prices push back above $1.850 an ounce. According to analysts, the precious metal is finding new bullish momentum as the U.S. dollar sees further selling pressure.

The U.S. dollar index has fallen to a one-month low of 102.15 and is down more than 2% after hitting a 20-year high two weeks ago. Meanwhile, the gold prices are up nearly 4% after bouncing off support below $1,800 an ounce last week. June gold futures last traded at $1,852 an ounce, up 0.51% on the day.

Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank, noted the gold market has regained its technical bullish momentum as prices push back above their 200-day moving average. However, she added that investors need to continue to watch the U.S. dollar and bond yields.

"The recent retreat in the dollar and the U.S. yields are what support the higher valuation in gold since last week; therefore, any change of direction on the dollar and yields front could stop the rally," she said.

Ozkardeskaya, added that if gold's momentum holds, she sees potential for prices to test resistance between $1,875 and $1,880 an ounce.

The U.S. dollar lost ground Monday after European Central Bank President Christine Lagarde, laid out the central bank's path to normalize its monetary policy.

Some analysts have said that the Lagarde is laying the groundwork to raise interest rates in July.

"With the inflation outlook having shifted notably upwards compared with the pre-pandemic period, it is appropriate for nominal variables to adjust – and that includes interest rates. This would not constitute a tightening of monetary policy; rather, leaving policy rates unchanged in this environment would constitute an easing of policy, which is not currently warranted," she said in her commentary Monday. "If we see inflation stabilising at 2% over the medium term, a progressive further normalisation of interest rates towards the neutral rate will be appropriate. But the pace and overall scale of the adjustment cannot be determined ex ante."

Some analysts have warned that the U.S. dollar has further ground to lose as the monetary policy gap between the Federal Reserve and the ECB starts to narrow.

However, some analysts still expect the U.S. dollar to continue its upward trend as interest rates will still be higher compared to those in Europe.

"We still view this as a correction within the longer-term dollar rally but confess surprise at how far the dollar has fallen from the early May peak," said currency strategists at Brown Brothers Harriman.

This algorithm says gold is 'cheap' as safe-haven plays dominate

However, some analysts see room for both the U.S. dollar and gold to rally together, especially as equity markets remain volatile. After flirting in bear-market territory Friday, the S&P 500 is starting the new trading week with some buying momentum. The S&P 500 is up 1% on the day, last traded at 3942 points.

But many analysts see further weakness ahead as corporate earnings face inflationary headwinds and rising recession fears.

"Equity market conditions can still get a lot worse," said Phillip Streible, Chief Market Strategist at Blue Line Futures. "There are signs that economic conditions in the U.S. are starting to deteriorate. That will drive safe-haven demand for gold and the dollar."

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.