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18.01.2022 21:21

Gold Price Analysis: XAU/USD dips under 21 and 50DMAs near-$1810 as higher US yields weigh

  • Spot gold has recently dropped under its 21 and 50DMAs in the $1810 area.
  • Recent downside reflects the upside in US yields, which hurts the appeal of non-yielding precious metals.

Spot gold (XAU/USD) prices fell to their lowest level since this time last week on Tuesday, breaking below support in the form of the 21 and 50-day moving averages at $1810. Gold weakness, which has seen spot prices drop about 0.6% to current levels around $1807, reflects recent upside in US bond yields as traders further ramp up Fed tightening bets ahead of next week’s Fed meeting. Notably, the 2-year yield surpassed 1.0% for the first time since February 2020, whilst the 10-year rose briefly above 1.85% to hit fresh near-two-year highs before slipping back to just above the 1.80% level.

Real yields, with which precious metals like gold have the strongest negative correlation, were also up, with the 10-year TIPS trading in a -0.65% to -0.70% range and at its highest levels since early Q2 2021. Remember that higher real yields raise the opportunity cost of holding non-yielding assets like gold. In the absence of any Fed speak or tier one US data releases to drive Fed tightening expectations in the week ahead, movements in bond and currency markets, which will by virtue impact precious metals, are likely to be driven instead by animal spirits. With the market seemingly expecting four rate hikes in 2022 and a further four in 2023, risks for both the US dollar and yields (real and nominal) seem tilted to the upside.

That doesn’t bode well for spot gold prices, which may be looking at further losses, including a drop back under $1800, though such a move would require prices to fall under the 200DMA at $1803. Looking at the last few weeks, the 200DMA has had a mixed ability to offer support/resistance. A drop below $1800 would then see bearish short-term speculators turn their focus to a test of this year’s lows in the $1780s.

 


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