Gold Price Analysis: XAU/USD stable in the $1800s following recent choppiness

It’s been a choppy couple of sessions for spot gold (XAU/USD) prices, which slid back from earlier weekly highs at $1820 to underneath $1790 at one point on Wednesday but have since stabilised in the $1800 area on Thursday. Gold has been buffeted by choppiness in bond and FX markets in recent days, though traders have warned not to read too much into the recent price action given holiday-thinned liquidity conditions that will prevail until the end of the week. One thing that can be derived from the recent price action is that the 21-day moving average appears to have become a key level of support for spot gold

Real yields rallied on Wednesday, with the 10-year TIPS trying to push to the north of the -1.0% level having previously traded around -1.06% and this upside seemed to pressure gold at the time. Remember, gold has an inverse relationship to US real yields, given they are a proxy for “opportunity cost” - as real yields rise, so does the opportunity cost of holding non-yielding gold, thus demand for the precious metal is weakened.

The 10-year TIPS yield has since dropped back to the -1.06% area, allowing gold to recover back to the $1800 area. There didn’t seem to be anything behind the recent moves in real yields, with the initial upside spurred by a rally in the nominal 10-year yield, which broke above the 1.50% level for the first time in a few weeks and was carried briefly above 1.55% amid technical selling. Remember that higher bond yields reflect the fact that bond prices have fallen. So long as the 10-year TIPS remains subdued to the south of the $1800 level, spot gold has a decent shot of holding in the $1800 region.

Also helping gold recover from Wednesday’s dip has been a gradual weakening of the US dollar. The DXY dipped under 96.00 on Wednesday for the first time since mid-December after the latest US trade figures showed the country’s monthly trade deficit balloon to over $97B, well above expectations for a monthly deficit figure of $89B. The DXY has since been choppy but continues to trade in the 96.00 area, having seemingly failed to garner any impetus in wake of the latest strong weekly jobless claims report (initial claims fell back under 200K).