Gold Price Analysis: XAU/USD headed towards $1810, back above 200DMA, as US dollar/yields fade

Spot gold (XAU/USD) prices breached resistance in the form of the psychologically important $1800 level during Tuesday Asia Pacific trade and have since continued to ebb higher towards the $1810 level. In doing so, spot prices have crossed marginally above the 200-day moving average at $1805.78 and, at current levels around $1807, trade around 0.6% higher on the day. Market commentators have attributed a continued pullback in the US dollar and US bond yields as benefitting the precious metal.

For reference, the DXY is down another 0.4% on Tuesday to trade in the low-96.00s, taking its losses since last Friday’s peaks near 97.50 to nearly 1.2%. US 10-year nominal yields, meanwhile, are down about 4bps on the day to back under 1.75%, around 15bps below January’s highs around 1.90%. Meanwhile, the 10-year TIPS (real) yield is down closer to 6bps and back below -0.70%, now roughly 20bps below January’s near-0.50% highs. A weaker US dollar makes USD-denominated gold cheaper for holders of international currency, while lower yields reduce the opportunity cost of holding non-yielding precious metals.

Some analysts also cited strong ETF demand as helping drive gold’s strong recent gains, which has seen the precious metal bounce roughly 1.5% from last Friday’s near-$1780 lows. Holdings of the world’s largest gold ETF, the SPDR Gold Trust, rose to their highest levels since mid-August on Monday, analysts at Reuters noted. Other analysts said Monday’s chorus of Fed speak has also offered some support for the precious metal. Policymakers stuck to the script in backing near-term tightening and endorsing a March hike, but didn’t seem to hint at a 50bps move next month and were cautious to comment on the longer-term outlook for policy.

Risks Incoming

While it's been a good start to the week for gold, the precious metal continues to face downside risks in the form of US data later this week. Primarily, if Friday’s labour market report shows signs of a further build-up of wage pressures at the start of 2022 and a further tightening of labour market conditions, markets might start betting on a 50bps hike in March again. This could send XAU/USD back towards last week’s $1780 lows. Ahead of Friday, gold traders will also be watching the January ISM surveys, with the Manufacturing report due later this Tuesday.