- Despite the stronger dollar and rising US yields, gold hit new weekly highs in the 1940s in recent trading.
- In doing so, it broke above its 21 DMA and is now eyeing a test of the late March highs at $1,960.
- Demand for inflation protection appears to support the precious metal, with next week’s US inflation data in the spotlight.
Despite continued bullish momentum in the US dollar on Friday that saw DXY hit 100 for the first time since May 2020, and continued bullish momentum in US yields across the curve, with yields on 10-year Treasury bonds hitting 2.70% for the first time since March 2019, gold (XAU/USD) still in demand. Despite a stronger dollar making it more expensive for international currency traders and higher yields increasing its “opportunity cost” as a non-yielding asset, XAU/USD recently pushed above its 21 moving average. days at $1,930, to advance to new weekly highs at $1,945.
XAU/USD bulls are looking for a break above last week’s highs just below $1950, which could open the door for a push towards the late March highs of 1960. Gold is apparently currently being supported in the face of unfavorable financial conditions (i.e. strong USD and higher yields) amid continued strong demand for 1) safe havens amid ongoing geopolitical concerns and 2) protection against inflation.
In fact, gold traders will be watching for the release of US consumer and producer price inflation metrics for March next Tuesday and Wednesday, which are likely to show a big jump MoM due to the impact of the war. Russian-Ukrainian. If it is even bigger than expected, this could trigger a new call for inflation protection and push XAU/USD towards $1,960.
But a higher-than-expected inflation figure will put more pressure on the Fed to be even more aggressive than it already is. One difficulty traders are going to have in the coming quarters is judging the relative impact of Fed tightening (gold bearish) vs. demand for inflation protection (gold bullish).
Technical levels
Source: Fx Street
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