- Gold advanced on Monday despite the US dollar and yields rose on the back of Powell’s hawkish line comments.
- XAU/USD is in the $1,940 zone and is targeting recent highs around $1,950 as inflation and geopolitical concerns persist.
Gold (XAU/USD) has been trading mostly higher during US trading hours, despite the latest comments from Fed Chairman Jerome Powell, which were taken by market participants as much more aggressive than expected and boosted the US dollar/yields. Gold has risen from session lows below $1,920 per troy ounce to current levels in the $1,940 zone, up around 1.0%. Highs from last Thursday and Friday in the $1950 area cap price action for now.
Powell said the Fed needs to move quickly to get interest rates back to neutral, warning that could mean rate hikes of more than 25 bps at intervals and saying the Fed may need to raise rates above the neutrality. Some analysts said his comments were nothing more than a reiteration of his comments on last week’s post-Fed policy announcement, but markets responded by further raising the implied probability of a 50bp move in May above the 60% (from about 50% before his speech).
The subsequent move higher in the US dollar (DXY +0.25%) and US bond yields (2 shillings +17 bps, 10 shillings +15 bps) would normally weigh on gold demand by making it more expensive for non-dollar currency holders and through a higher “opportunity cost” of holding non-performing assets. But risk-off market conditions (US equities are slightly lower overall) appear to be spurring some safe-haven demand, while a sharp rally in crude oil markets is keeping alive fears of inflation and thus stimulates some safe haven demand. Oil prices have risen around $8.0 (in WTI) on the session as momentum builds towards an EU-wide embargo on Russian oil exports.
Another bullish factor for gold is the fact that the Russian-Ukrainian peace talks appear to have largely stalled, with no progress seen over the weekend, all while the brutality of the Russian attack on several cities has increased. ukrainian Therefore, the drive towards ever-tighter sanctions against the Russian economy remains strong. The calculation at the moment for gold seems to be that there are still plenty of reasons to continue adding longs on any pullback to the $1,900 area.
Additional technical levels
Source: Fx Street
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