Gold Price Analysis: XAU/USD rejects $1740 level and drops back to $1720s as yields rally from lows

• Spot gold failed to break above resistance at the $1740 level and have reversed back to the $1720s.
• XAU/USD has been caught between the conflicting forces of a softer US dollar, recovering US bond yields and risk-on.

Spot gold prices (XAU/USD) were unable to break above their 2 March highs at just above the $1740 level on Thursday and have since reversed back into the $1720s, where spot prices now trade lower by about 0.2% on the session. Gains on the week still stand at 1.2%, however, meaning gold is on for its first positive week in four.

Driving the day

The US dollar has been slipping throughout the day on Thursday, with the DXY dropping into the 91.30s in recent trade having started the day closer to 91.80. This would normally be bullish for precious metals like gold, and it certainly has offered the yellow metal some support, but other factors have been weighing.

Firstly, US government bond yields have pulled back from early European session lows to trade back flat on the day again; 10-year yields dropped under 1.48% at one point earlier this session, down more than 4bps at the time (this supported gold at the time), but have now recovered back above 1.52% (this recovery pulled gold lower again). Real yields have seen similar price action, with the 10-year TIPS yields back to flat on the day around -0.75% from earlier lows of just above -0.8%.

Secondly, risk appetite has been very upbeat; US equities have performed well across the board and the S&P 500 hit fresh intra-day all-time highs, with markets boosted after US President Joe Biden signed the $1.9T stimulus package into law and amid growing chatter regarding the Biden administration’s next, infrastructure-focused stimulus package that is touted as potentially being significantly larger than the one just passed. In an environment when active US fiscal policymakers are keen to stimulate and boost the long-term growth of the US economy, that implies higher long-term interest rates, something which bears are using as an excuse to sell non-yielding assets like gold.