Gold Price Analysis: XAU/USD flatlines around $1840 as markets look forward to Biden inauguration

Spot gold prices (XAU/USD) have for the most part gone sideways on Tuesday, as markets digested what turned out to be a large as expected testimony from US Treasury Secretary nominee (and former Fed Chair) Janet Yellen. Per troy ounce spot prices have for the most part stuck within a few dollars of the $1840 mark and the precious metal is shaping up to finish the day with modest gains of about 0.1%.

Gold markets are looking ahead to US President-elect Joe Biden’s inauguration to the Presidency on Wednesday, which will be eyed for more information from the President-elect as to his plans and agenda. Markets will also be on the lookout for any further political violence.  

Driving the day

The US dollar was softer (the DXY fell back to 90.50 from earlier weekly highs closer to 91.00), real yields fell (the 10-year TIPS dropped 1.3bps to -1.028% and the 30-year TIPS dropped 1.2bps to -0.285%) and inflation expectations rose (5-year break-evens rose about 3bps to nearly 2.14%, 10-year break-evens rose about 2bps to just under 2.09% and 30-year break-evens rose just over 1bps to just over 2.11%) on Tuesday, a typically bullish combination for gold. Given the above, it is perhaps surprising that the precious metal only gained 0.1% on the day.

The above-noted shifts higher in break-even inflation expectations combined with the drop in real yields implies that markets read Yellen’s broadly dovish sounding testimony as boding well for the Treasury’s ability to deliver inflation boosting stimulus while the Fed maintains accommodative monetary policy. If this is the case, this ought to support the likes of spot gold, given their status as hedges against inflation. Stock markets certainly seemed to take it that way, with all four major US bourses rallying in wake of Yellen’s remarks.