Gold Price Analysis: XAU/USD back in the $1740s as dollar and yields slide

• Spot gold prices have been firmly on the front foot in recent trade, having recently lept back into the $1740s.
• Lower US bond yields and a weaker US dollar are helping precious metals gain ground.

Spot gold (XAU/USD) prices have been firmly on the front foot in recent trade, having recently lept back into the $1740s, an impressive recovery from last week’s $1680ish lows. If spot gold can surpass the $1750 level, it could then be testing the March highs and some bulls may even be looking for a move towards the 50-day moving average at $1769. On the session, gold trades with gains of about 1.0% or slightly more than $15.

Driving the day

US government bond yields and the US dollar are both on the back foot on Tuesday. 10-year yields are down more than 5bps on the session to under 1.67%, now more than 10bps below last week’s 1.77% highs. Meanwhile, the Dollar Index (DXY) has fallen back below its 200-day moving average at 92.45 and is now trading under the 92.40 level. Given gold’s negative correlation to both USD and bond yields, weakness in these two is helping to propel precious metals markets higher on Tuesday.

In terms of fundamental catalysts, there aren’t a great deal of fresh macro updates. Economic optimism is high, particularly surrounding recovery expectations in the US after the recent string of strong tier one data releases and now a bullish forecast from the IMF, hence why US equities continue to perform well with the S&P 500 etching out fresh all-time intra-day highs in recent trade. Note, the IMF released their latest World Economic Outlook on Tuesday and upgraded their global growth forecasts for 2021 pretty much across the board.

Some market participants are perplexed as to why all the above noted economic optimism, particularly with regards to the recovery in the US, is resulting in higher yields and a stronger US dollar this week. Indeed, over the past few weeks, increasingly optimistic growth expectations in the US have put upwards pressure on US yields, whilst an increasing divergence in expectations for US growth this year versus the likes of the EU and other major developed market peers has been supporting the US dollar. If this narrative is still alive, why are US yields and USD not still heading higher? asks some market participants.

Perhaps recent downside in both is a result of profit-taking after both yields and the dollar saw impressive gains in March. Perhaps this will be seen as an opportunity for the longer-term dollar and yield bulls to add to their long-term positions. If this turns out to be the case, this does not bode well for precious metals and the recent rebound in gold could end up being little more than a dead cat bounce.