Gold Price Analysis: XAU/USD indecisive as traders look ahead to key risk events

Spot gold prices (XAU/USD) were indecisive on Monday, swinging within a $20 range from the upper $1840s to the upper $1860s. Volatility has died down in recent trade ahead of the start of the Asia Pacific session and the precious metal looks as if it is going to close out the day flat in the mid-$1850s.

Driving the day

The US dollar was indecisive on Monday; the Dollar Index moved higher, but this was primarily as a result of EUR weakness and the USD did not perform especially well against any of its other G10 counterparts. Subdued sentiment towards the US dollar saw equally subdued sentiment towards precious metals markets, which often trade as a (negative) function of US dollar price action. Real yields dropped a little as a result of cautious investors looking for a safe haven driving up bond prices, something which would normally be bullish for gold, but inflation expectations dropped a little, which is a gold negative and canceled the drop in real yields out.

Concerns about vaccine rollout delays, lockdowns, mutant Covid-19 variants and travel bans weighed on European markets on Monday (European stocks and the euro dropped while European bonds rallied), but there was not much by way of contagion to US markets; US stocks finished the session mostly higher, albeit (as noted) US bonds did see a substantial rally (10-year yields dropped 5.8bps to 1.033%, its lowest since the first week of the year). Precious metals tend to take their cue much more from US than European markets and, thus, the lack of contagion of European risk-off to either US stocks or the US dollar meant that precious metals were largely subdued also.

Coming up

US (and precious metal) markets are looking ahead to key risk events later in the week. For the US, that means Wednesday’s FOMC meeting and Thursday’s preliminary Q4 GDP numbers. Regarding the former, the Fed is expected to reiterate its ultra-accommodative monetary policy stance as well as push back against QE taper chatter.

Friday’s Core PCE numbers for December ought also to be of interest, given that this is the Fed’s favoured inflation gauge. Inflation is not expected to substantially pick up until the end of Q1, however, when it will be lifted by base effects as opposed to any strong pick up in MoM price growth.