Gold Price Analysis: XAU/USD eyeing break below $1700 if this week’s US data beats

• Spot gold prices are looking vulnerable in the $1720s after printing fresh multi-month lows during Tuesday Asia Pacific trade.
• Traders may look for a break below the $1700 level if strong US data this week adds to “over-heating” concerns.

Spot gold prices (XAU/USD) are looking vulnerable in the $1720s after printing fresh multi-month lows during Tuesday Asia Pacific trade of just under the $1710 mark. In recent trade, XAU/USD has been swinging between positive and negative territory on the day, but in truth appears to be in wait and see mode ahead of key US data releases and economic events later in the week, although ahead of these events, many traders think gold is likely to retain this week’s modestly negative trading bias and a test of the key $1700 level within the next 12 or so hours still seems likely.

Events to watch this week

For reference, Wednesday sees the release of the ISM Services PMI report for February, a timely update on the state of the US’ service sector recovery, as well as February’s ADP National Employment Change estimate, a release that helps set expectations for the NFP release later in the week. Thursday sees Fed Chair Jerome Powell (expected to reiterate the dovish Fed script whilst now showing any concerns about rising bond yields) plus Weekly Jobless Claims numbers and Friday sees the release of the February Labour Market Report, which will be the main event of the week.

As far as gold is concerned, the worse the data the better, as the last thing that gold bulls want is for strong data to further stoke US economy “over-heating” fears, which tend to go hand in hand with expectations for faster policy normalisation from the Fed (something which is positive for USD and US bond yields and negative for gold).

Bond market signals

The above-noted upcoming economic events are likely to inject some more directional conviction into markets. After a volatile end to last week, US bond markets have calmed notably at the start of this week; 10-year yields are rangebound between 1.40%-1.45% parameters and 30-year yields have not strayed too far from the 2.20% mark. Real yield price action has also calmed, with 10-year TIPS yields having for the most part ranging within the -0.70s%.

Some market commentators fear that this lull in volatility at the start of this week could well be the “calm between storms” and that a combination of strong data and further indifference from the Fed regarding bond yields, as well as the possibility that the US Senate vote in favour of US President Joe Biden’s $1.9T stimulus package before the week is out, could send real and nominal yields back on an upwards trajectory again.

If this was to be the case, this would of course not bode well for gold (given the precious metal has an inverse correlation to bond yields, namely, real yields) and could be enough to send XAU/USD under the $1700 level. In this case, traders should be aware of support in the form of the late April to early June 2020 lows in the $1660-$1675 region as a potential target.