- Gold prices look on course for a fifth consecutive day of losses.
- XAU/USD is trading in the $1770s, weighed by a stronger US dollar due to strong US data.
Spot gold prices (XAU/USD) look on course for a fifth consecutive day of losses, during which time the yellow precious metal has dropped from the $1840s to current levels in the $1770s. XAU/USD is now more than 4% below its 200-day moving average, the furthest it has been from this indicator or momentum (which currently sits around $1856) since 2018, prior to the start of the gold bull run which got started in mid-2019. Spot gold prices are currently a little over 14% below all-time high levels set in August 2020, not quite a bear market yet; that would require a drop as low as the $1650s. Prior to pushing gold into bear market territory, short sellers will be targeting a test of the November 2020 lows in the $1760s.
Downside pressure continued on Wednesday, despite a retracement lower in US bond yields; the 10-year yield has fallen back from highs above 1.32% to current levels under 1.28% and the 30-year yield has seen an even steeper drop, down nearly 5bps on the day to under 2.05%. The retracement in nominal yields is not being reflected to the same extent in real yields, which is why this is not supporting gold. Indeed, it lower nominal yields versus less change in real yields actually mean that inflation expectations have fallen, which certainly isn’t a good thing for gold, which is seen as the ultimate hedge against inflation.
Driving the day
Weakness in gold on Wednesday is primarily being driven by a stronger US dollar as a result of strong US data. For reference, the January Retail Sales report (released at 13:30GMT) was a blowout, with headline sales up 5.3% MoM versus expectations for an increase of closer to 1.0%. Core measures of retail spending were even stronger. Consumers evidently spent their government stimulus cheques with gusto and economic reopening in some states likely also helped. Elsewhere, Producer Prices rose at a faster than expected pace in January and Industrial Output data, also for January, beat forecasts.
Strong US data is likely a taste of things to come, as the country continues to benefit economically from further fiscal stimulus, economic reopening and expectations for a boost to consumer and business sentiment as the vaccine rollout progresses. With bond yields rallying in anticipation that this stronger recovery is going to translate into higher long-term growth and perhaps higher long-term interest rates from the Fed, it seems as though gold is at risk of further losses.
Looking ahead, precious metal traders will be eyeing the release of the minutes from the January FOMC meeting at 19:00GMT; expectations are that the FOMC remains unanimously in support of holding interest rates at rock bottom until it has achieved its dual mandate of full employment and 2% inflation (which will require the Fed to get inflation to sustainably over 2% for a period to make up for past weakness). A few members might be a little more eager to begin tapering the bank’s QE programme sooner rather than later, though they are expected to be in the minority. The minutes ought to be net-net dovish and should prevent XAU/USD from slipping below November 2020 lows on Wednesday, at least.
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