Gold Price Analysis: XAU/USD struggles to benefit from buck weakness and stuck in mid-$1820s for now amid resilient yields

Spot gold (XAU/USD) prices have pared back from Asia Pacific/early European session highs at the $1828 mark in more recent trade though have for the most part remained support above $1820. Some traders have been disappointed at gold’s struggles to benefit from this week’s run of US dollar weakness. Yes, the precious metal is higher by about 1.50% on the week, having recovered back to current levels in the $1820s from previously underneath $1800. But the rally has run out of steam ahead of this year’s $1830 highs. That compares to the Dollar Index, a trade-weighted basket of major dollar pairs, which has slumped to fresh two-month lows on Thursday underneath the 95.00 level. Typically, a weaker dollar benefits USD-denominated precious metals such as spot gold as it makes it cheaper for international buyers.

Gold’s reluctance to break out to fresh multi-month highs in tandem with the dollar’s recent slide has its roots in a few factors. Firstly, the dollar move does not reflect a USD bearish fundamental developments, rather it seems to be driven by positioning adjustment as market participants book profit on crowded long-positioning. Indeed, recent USD fundamental developments, such as indications from the Fed it wishes to implement as many as four hikes in 2022 and start quantitative tightening, headline inflation hitting fresh near-four-decade highs at 7.0% and the jobless rate dropping under 4.0% are all arguably USD positive. These dollar positives are at the very least keeping US bond yields support close to recent highs; 10-year yields are trading in the mid-1.70%, just below recent multi-year highs at 1.80% and 10-year TIPS (real) yields are back in the -0.75% area, just below multi-month highs at -0.70%.

Indeed, the resilience of bond yields to hold close to recent highs despite the pullback in the US dollar is the second major reason for XAU/USD’s reluctance to move above $1830. The latest mixed jobless claims, US Producer Price Inflation data and comments from Fed member Patrick Harker, who supports three hikes and could be persuaded on four in 2022, did not shift XAU/USD sentiment. Traders will nonetheless be keeping an eye on upcoming Fed speak on Thursday in the form of Fed Vice Chair nominee Lael Brainard’s Senate hearing from 1500GMT, as well as remarks from other speakers.