Gold Price Analysis: XAU/USD corrects in New York as the greenback slides

Update: Spot gold (XAU/USD)  is trading flat in the New York session near $1,784 and has travelled between a range of $1,779.71 and $1,793.15 and is currently correcting from the lows as the greenback slides. The US dollar is down some 0.4% falling from a high of 96.379 to a low of 95.890 as measured by the DXY index. 

Meanwhile, US indices are mixed as the Nasdaq Composite traded higher, and government bond yields extended their gains. The US 10-year yield is higher by nearly 3% at the time of writing and had jumped over 4.5 basis points to almost 1.54%, the highest level in more than a week.

The euro is higher which is denting the greenback that is suffering against CHF and the antipodeans.  The dollar seems to be unwinding longs ahead of Friday's US Consumer Price Index print and next week's Federal Open Market Committee meeting.

The November forecast for the inflation rate is 6.9% compared with a 6.2% reported in the previous month, according to data compiled by Trading Economics.

Meanwhile, following Chair Jerome Powell's comments last week when speaking to the Senate Banking Committee, market expectations are that the Fed could double the pace of tapering its asset purchase program. This could come as soon as December's meeting. This will give the central bank the optionality to lift interest rates faster than it previously anticipated. Currently, two to three rate increases are priced in the market for 2022 which had been supporting the greenback.

As for data from today, US job openings rose to 11.033 million in October from 10.602 million in September according to the Bureau of Labor Statistics, compared with 10.469 million openings expected in a survey compiled by Bloomberg. The level of hiring remains well below the number of job openings, confirming that businesses are finding it difficult to fill positions. 

End of update

Spot gold (XAU/USD) prices have been choppy in recent trade, attempting, but eventually failing to break to the north of the 200-day moving average at $1792.00. Spot prices have since reversed lower from these earlier session highs to the mid-$1780s region, where they trade roughly flat on the day. Broader risk appetite has turned choppier again on Wednesday after 1) news broke that the UK is on the verge of announcing new Covid-19 related restrictions and 2) a study on blood samples out of South Africa showed two shots of the Pfizer/BioNTech vaccine to only be partially effective versus the new Omicron variant.

However, in response to the South African study, Pfizer and BioNTech released their own study this morning claiming that the current booster vaccine lifts vaccine efficacy back to levels comparable with the efficacy of two doses versus the original Covid-19 variant. Conditions in global equity markets have been choppy, with European indices and US index futures swinging between gains and losses, though this hasn’t translated into any major safe-haven bid, thus why gold is flat.

Gold’s subdued mood is in fitting with the price action in FX and US government bond markets; the DXY is currently flat in the low 96.30s, broadly in line with where it has traded for the past five sessions, while the US treasury yield curve is flat on Wednesday. US JOLTs Job-Opening numbers for October will be released at 1500GMT and should confirm that demand for labour (i.e. the number of job openings) remained well above the number of unemployed persons. This should underpin the Fed’s view that the labour market in the US is currently very tight and support market expectations for the bank to agree on accelerating its QE taper when it meets next week.

However, the most important data this week, both for XAU/USD and in terms of Fed monetary policy expectations, will be Friday’s US Consumer Price Inflation report for November. Recall that October’s report, which came in well above expectations at 6.2% YoY, triggered demand for inflation protection in the form of US government TIPS bonds and precious metals. Traders will be on notice for the possibility that another upside surprise triggers a similar reaction. However, analysts also note that another upside surprise (say, above 7.0% YoY) might be interpreted as exerting more pressure on the Fed to bring forward their rate hike timeline, which could be a negative for gold, if it resulted in real yields moving higher.