Gold Price Analysis: XAU/USD surges to multi-month highs above $1835 amid technical buying/short-squeeze
|- Technical buying has seen XAU/USD break out to fresh multi-month highs above $1835 as the dollar and US yields ease.
- There was likely a run on stops of bears betting on Fed tightening related gold weakness in the low $1830s.
With the dollar taking a breather from its earlier weekly gains and US yields either flat or seeing some modest retracement of recent gains, spot gold (XAU/USD) prices have taken the opportunity to rally to fresh multi-month highs in the $1830s. Technical buying as XAU/USD broke to the north of a negative trendline that has been capping the price action since last Friday has been the main driver of the move. At current levels around $1836, spot gold trades with gains of about 1.3% on the day. Now that the $1830 resistance area has been cleared, gold bulls will likely target a return to Q4 2021 highs near $1880.
Some macro strategists will be surprised at the extent of gold’s gains on Wednesday, which takes the precious metal's weekly gains to more than 1.0%. That’s because, on the week, the US Dollar Index is up about 0.4% and 10-year TIPS (real) yields are up more about 6bps. The moves in FX and bond markets reflect a further pricing of hawkish Fed policy expectations for 2022 and beyond and would typically weigh on gold. A stronger dollar makes USD-denominated gold more expensive for holders of foreign currency, thus reducing its demand, while higher real yields increase the opportunity cost of holding non-yielding precious metals, also reducing demand.
The latest move higher might well represent a stop-run, with gold bears having placed stops just above resistance somewhere in the low-$1830s. These traders would have been caught off guard by the recent move, but that doesn’t mean the threat of higher real yields and a stronger dollar can’t still deliver spot gold prices some damage. If gold markets continue to move higher in a way that is out-of-sync with bond and FX markets, the precious metal is at risk of becoming relatively “expensive” and vulnerable to a retracement lower.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.