03.05.202210:12 Forex Analysis & Reviews: Gold and dollar sparks: the Battle of the Titans. USD bypasses gold

The yellow metal started a new month and a new week in a cloudy mood. According to analysts, gold has sunk significantly, giving way to the dollar, with which it most often competes on world markets.

At the beginning of this week, the yellow metal sank below $1,880 per 1 troy ounce. Gold's downward movement did not stop there. On the evening of Monday, May 2, the price of the precious metal fell by 2.9% to $1857.12 per 1 troy ounce. On the morning of Tuesday, May 3, gold futures for June delivery fell by 0.07% to $1855.93. According to analysts, the support level for the yellow metal was $1853.40, and the resistance level was $1921.30 per 1 troy ounce.

In the first trading sessions of May, the price of gold sank significantly against the background of the strengthening of the US currency. The latter confidently opposes the yellow metal, maintaining leadership in the financial market. The greenback is getting more expensive against other world currencies, trading near multi-year highs. The greenback is supported by a decrease in risk appetite and a possible tightening of the Federal Reserve's monetary policy.

On Wednesday, May 4, the markets expect the Fed to raise interest rates by 50 basis points (bp). However, according to Commerzbank currency strategists, such a decision by the central bank will not affect the yellow metal too much. According to experts, "against the background of a steady strengthening of the greenback, gold is breaking through to the downside." This is also facilitated by the resumption of growth in the yield of US government bonds.

Many financial investors are losing interest in the yellow metal. According to Bloomberg, last week, at the end of April, a powerful outflow of capital from gold was recorded. This put an end to a 14-week inflow of funds into the yellow metal. According to the CFTC, at the end of April, financial investors reduced long positions on gold by 20%, to 81,000 contracts. This is the lowest level since the beginning of February 2022, analysts summarize.

Currency strategists are confused by the current dynamics of gold. It was expected that in the current conditions it would become an ideal protective asset, but this did not happen. The price of precious metals not only did not increase, but even sank. According to preliminary calculations, two negative factors contributed to this: the Fed's excessively hawkish position and speculation on Russia's gold reserves.

1. The Fed's aggressive monetary policy

Many analysts are confident that the expectation of aggressive actions against the Fed's monetary policy will paralyze the price of gold. The prospect of a further rise in the key rate in the US increases the dollar's appeal compared to other assets, such as gold. As a result, it will take less dollars to buy 1 ounce of precious metal. This helps to reduce the price of gold denominated in USD, experts say.

2. Manipulations with the gold reserve of Russia

According to analysts, the gold reserves of the Russian central bank turned out to be one of the few assets not affected by Western sanctions after the start of the Russian-Ukrainian conflict. At the same time, the lion's share of Russian assets was frozen. However, experts admit that part of the $140 billion worth of gold can be sold to make current payments.

At the moment, the global investment environment remains attractive for investments in gold. Factors such as the Russian-Ukrainian conflict, slowing economic growth in China, skyrocketing inflation in a number of countries and stock market instability contribute to this. Many experts expect a large-scale price rally in the gold market. Currently, the yellow metal demonstrates relative stability, which has been observed since the beginning of 2022.