XAU / USD Still Uninspired, But Key Risk Events Ahead

  • Spot gold continues to hold near its 21-day moving average within a tight range of $ 1,720 and $ 1,740.
  • The precious metal has been caught this week amid the conflicting forces of a strong USD but lower real returns.

Gold Spot Prices (XAU / USD) They continue to hold near their 21-day moving average, as has been the case for most of the week, in which spot prices have locked within a narrow average of $ 1,725 ​​- $ 1,745. During the day, spot gold prices are trading up a modest 0.3%, while during the week it is down 0.7%.

Performance of the day

Spot gold is about to post its least volatile week in months, with the precious metal caught between two conflicting forces. On the one hand, the US dollar (with which gold is negatively correlated) has been at the forefront, with the DXY rising from below 92.00 to current levels modestly above 92.50.

On the other hand, the bond market price action has been much more favorable to precious metals; Real US bond yields have declined this week, with the 10-year TIPS yield falling around 8 bps from around -0.6% to around -0.7%. Meanwhile, nominal returns have also fallen, but by a less significant amount, meaning that inflation expectations have risen further: 10-year returns are currently in the mid-range of 2.30%, their highest levels. since early 2014.

Reflections on the third waves of Covid-19 and gold

In recent weeks, the general trend has been for both the USD and bond yields to rise together, primarily as a reflection of optimism about the US economy and the aggressive implications this ultimately has for US policy. the Fed. But the narrative seemed to change a bit over the past seven sessions. It has been less about optimism about the US recovery and more about concerns about third Covid-19 waves in Europe and other parts of the world; This is the main reason why global stocks have retreated (albeit very modestly) from recent highs and why crude oil has sharply corrected lower.

There are also nascent signs of a third wave in the US (The 7-day moving average of new Covid-19 cases has risen almost 10% in the last week). While the fact that the most vulnerable US citizens have already been vaccinated is expected to keep the death toll from any third wave in the US low, a spike in cases is likely to raise some concerns. A longer period of risk aversion is likely to weigh on USD holdings and US government bonds as safe havens, which means higher USD and lower yields.

Technical levels

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