- Gold prices (XAU / USD) moved to six-week highs despite risk appetite as long-term US bond yields remain subdued.
- XAU / USD reached $ 1,818, breaking the highs of December and late November, an increase of $ 30 from last week’s lows.
Gold prices (XAU / USD) they hit six-week highs on Tuesday, topping the December high of $ 1,814.30 and the November 26 high of $ 1,815.57 to hit $ 1,818. The safe-haven precious metal is recovering despite risk conditions in other asset classes, such as equities (US stocks are trading at all-time highs in pre-market trading) and risk-sensitive commodities like Petroleum. Despite typical low volumes at this time of year due to the Christmas / New Years holidays, traders have been aggressively pricing bearish economic scenarios, with the rapidly spreading Omicron Covid-19 variant looking mild, reducing the risk of lockdown in the US and elsewhere. This has not affected gold at all, as the precious metal has advanced around $ 30 or 1.7% from last week’s lows of $ 1785.
The XAU / USD has been following suit, as is often the case, from the currency and bond markets. In terms of the former, the dollar continues to trade close to the bottom of recent ranges, with the dovish DXY just above 96.00. Meanwhile, while short-term US yields have rebounded as traders value the likelihood of an increasingly aggressive Fed (markets currently assign a roughly 50% chance of a rate hike in March), Long-term US returns remain subdued. The US 10-year yield, for example, continues to trade below 1.50%, unable to move higher along with stocks / oil, as some might have anticipated. Meanwhile, 10-year TIPS (real) returns also remain subdued and within recent ranges below the -1.0% level.
Longer term
Yields continue to tell a story of moderate long-term outlook for the US economy, with growth and inflation returning to under-trend levels in the coming years and monetary policy remains reasonably encouraging in the long term. This could reflect a few things; 1) that markets are disappointed that Congress has yet to pass the Biden administration’s Build Back Better spending package, 2) that traders are concerned the Fed will tighten up too soon and hamper growth, and 3) that the pandemic will weigh on economic activity for the foreseeable future. As long as long-term US yields (real and nominal) remain subdued, this will support gold above $ 1,800. The big threat to gold would be if this long-term bearish outlook for the United States begins to improve.
In the immediate future, there is very little data from the US this week that could change the macro narrative. Next week will be much more important on that front with the release of December’s official jobs report and ISM surveys.
Technical levels
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