Gold Price Analysis: XAU/USD drops back under $1840 but remains resilient within recent ranges

Spot gold (XAU/USD) prices have pulled back a little from Asia Pacific highs in the $1843 area over the last few hours and were last trading in the $1838 area, down about 0.3% on the day. That still leaves the precious metal well within recent $1830-$1845ish ranges that have prevailed over the last few sessions. High levels of US equity market volatility is helping underpin gold with safe-haven demand. The S&P 500 was all over the place on Monday, reversing a more than 4.0% drop, and has since dropped over 1.0% in pre-market trade on Tuesday.

That safe-haven demand amid turmoil in the equity space, as well as elevated geopolitical tensions (primarily in Eastern Europe), is helping to shield gold from recent advances in the US dollar and bond yields. As market pre-position ahead what should be a very hawkish Fed meeting on Wednesday, the Dollar Index (DXY) hit fresh three-week highs on Tuesday in the low-96.00s, boosted by higher yields across the US treasury curve (10s +4bps to 1.78%). Typically, this combination would be a negative for gold; a stronger USD makes dollar-denominated gold more expensive for the holders of international currencies and higher yields increase the opportunity cost of holding non-yielding precious metals.

November House Price and January Consumer Confidence data out of the UK on Tuesday is unlikely to shift the narrative much for markets or dissuade the Fed from deeming it appropriate to signal that multiple rate hikes and quantitative tightening in 2022 is appropriate. Indeed, very week flash January US PMI data (primarily the services sector) was shrugged off by markets on Monday as being driven by temporary Omicron factors and this is almost certainly also how the Fed will view things.

What will be most interesting this week will be if gold can continue to hold only a few bucks below multi-month highs near the $1840 if hawkish Fed vibes continue to drive the US dollar and US yields higher. Any move back to and break below support in the $1830 area would open the door to a drop back to the 200 and 50-day moving averages in the $1800 area.