Gold Price Analysis: XAU/USD eyes $1830 level and key resistance just above it as real yields slide

Spot gold (XAU/USD) continues to trade with an upside bias, though recent trade has been choppy, with prices briefly surpassing the $1830 level, but ultimately failing to hold above it. At the moment, XAU/USD is up by slightly more than 0.1% on the day and in the upper part of Tuesday’s $1820-$1830 range.

Falling nominal and real yields across developed markets have provided a tailwind for precious metals markets; US 10-year TIPS yields have dropped 9bps so far on the session to the -1.20% mark, leaving them only slightly above record lows at -1.216% printed during the summer. That has dragged nominal 10-year yields over 7bps lower to around 1.42%, its lowest since late September.

The reason for the sharp decline in US yields is not quite clear. Commentary this week from Fed policymakers Richard Clarida (the Vice Chairman of the Fed) and Charles Evans on when the bank might hike was dovish, with the former saying he sees the conditions for a rate hike being met at the end of 2022 and the latter in 2023. That compares to USD STIR market pricing which points to a strong probability of rate hikes starting in mid-2022. Perhaps the downside is as a result of market participants revising higher their perceived probability that more dovish-leaning Fed Governor Lael Brainard getting the nod to be the next Fed Chair following reports that she recently interviewed for the position.

XAU/USD’s gains are being capped by now by selling interest ahead of a key area of resistance in the $1830s. Prices on four occasions tried and failed to break to the north of this level during the summer months. A clean break back to the north of this level is likely going to require more than just a sharp drop in US real yields. The US dollar is also going to have to start slipping, with such a move unlikely in FX markets ahead of Wednesday’s US October Consumer Price Inflation report.