Gold Price Analysis: XAU/USD boosted amid weaker USD, eyes retest of $1850s

Spot gold (XAU/USD) prices have rallied into the low $1840s on Thursday amid further USD weakness, with the precious metal recovering from a bout of post-US equity cash open weakness that saw prices drop into the low $1820s at worst levels. As the spot FX market close approaches at 22:00GMT, gold trades with gains of roughly 0.6% or slightly over $10.

USD slide gives precious metals bulls fresh impetus

A combination of the usual themes (US fiscal stimulus hopes, vaccine optimism and expectations for a strong global recovery in 2021) have kept USD on the back foot on Thursday, pushing the Dollar Index to lows around 90.50.

The above combination of themes, which have contributed to risk-on flows and outperformance in risk assets this week, could arguably be seen as a negative for gold prices. However, one could also argue that with inflation expected to pick up in 2021 (amid the strong global recovery), that means that real interest rates are likely to remain subdued (the Fed are, after all, not going to be raising rates anytime soon). A low real rate environment against the backdrop of the massive expansion of money supply that has already occurred in 2020 is likely to continue to support precious metals going forward, or so the bulls argue.

Back to the theme of vaccines; XAU/USD saw fleeting upside in wake of a somewhat concerning update from Pfizer regarding the logistics of their vaccine rollout; the pharmaceutical giant announced that it now expects to ship half of the doses it had originally planned in 2020 after discovering raw materials in early production that failed to live up to its standards. But commentators noted that while the news is disappointing for those in vulnerable groups in the UK and US who had hoped to be vaccinated before the year’s end and will now miss out, Pfizer is still set to deliver 1B doses in 2021, thus the path towards herd-immunity has not yet taken a material hit. Further logistical problems that result in severe delays in 2021 are likely to have a much larger impact on markets, and would likely be positive for gold.

XAU/USD looking to test bottom of late-September to early-November range

With XAU/USD prices having bounced nicely at the $1766 18 May high and staged a nice comeback in recent days, a test of resistance around $1850 is looking likely soon. $1850 roughly lines up with the 24 and 28 September and 9 November lows, which arguably sit at the bottom of an $1850-$1930ish range that gold spent most of the late-September to early-November period within.