Gold Price Analysis: XAU/USD dip to $1850 bought as Fedspeak eyed

Spot gold (XAU/USD) prices have in recent trade recovered back to trading flat on the day, having at one point prior to the US open been trading with losses of nearly 1.0%. The precious metal appeared to find good demand at $1850 as gold bulls and those seeking inflation protection bought the dip.

Prices got a small boost at 1500GMT in wake of the release of the University of Michigan Consumer Sentiment survey for November and the JOLTs Job-Opening report. The former showed sentiment hitting decade lows as consumers despaired over persistent inflationary pressures, while the latter showed that in September, the number of job opening exceeded the number of unemployed persons by a record 2.8M and the quit rate hit a record high at 3.0% (both indicators of a very strong jobs market).

In particular, the strong JOLTs report adds to a growing mountain of evidence that inflation is going to remain persistent above the Fed’s 2.0% target for quite some time; high labour demand equals high wage growth which leads to higher inflation. Gold bugs will now be hoping that the precious metal can challenge its prior weekly highs just shy of the $1870 level. At present, XAU/USD is close to $1860.

Fed under pressure to respond to inflation

Spot prices are on course to post gains of around 2.5% this week, with the bulk of the move higher coming in wake of a much hotter than expected US Consumer Price Inflation report on Wednesday, which showed consumer prices surging at their fastest YoY rate since 1990. Pressure is mounting on the Fed to take its foot off the accelerator (i.e. remove monetary stimulus at a faster rate).

Thus, a speech from influential Fed Board of Governors member and NY Fed President John Williams at 1710GMT will be closely scrutinised. If he continues to emphasise that the Fed is willing to be patient with regard to rate hikes and that the bank continues to believe the spike in inflation to be transitory, this may exacerbate fears that the Fed is making a dovish mistake. This would likely help gold finish the week with a flurry.