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  • Spot gold prices have dropped back from fresh near-two-week highs set during the European morning.
  • Prices are currently consolidating in the $1860s amid conflicting bond market signals.
  • XAU/USD does appear to have fallen slightly since the slightly less dovish than expected ECB meeting.

Spot gold prices have dropped back from fresh near-two week highs set at $1875 during the early European session, though have found support in the $1860s above the 50-day moving average which currently resides at $1860. At present, XAU/USD trades around 0.4% or just under $7 lower on the day.

During their European morning rally, spot prices came just shy of testing the 21-day moving average at $1877. A break above this level would potentially open the door to a move back to the psychologically important $1900 mark and then onto the $1960s. However, if the bears regain control and take XAU/USD back below its 50DMA, that would open the door for a move to the 200DMA at $1845 and then perhaps onto this month’s lows of just above the $1800 level set earlier on this week.

Driving the day

Spot prices arguably took a knock in wake of a slightly less dovish than expected ECB statement on monetary policy; the ECB added a line about how the bank might not need to use the EUR 1.85T PEPP envelope in full, which seems to have been a concession towards some of the bank’s more hawkish members. Of course, as far as gold (and precious metals in general) is concerned, less inflationary QE is a negative, though it would be a stretch to suggest that this is anything more than a minor tweak to the ECB’s QE guidance and the policy is set to remain one of their key tools.

Meanwhile, US data appeared not to have much of an impact on broader economic sentiment; initial weekly jobless claims were not as bad as expected but still pretty ugly at 900K, Housing data showed the sector still on fire and one of the earliest indicators as to the performance of the manufacturing in January, the Philly Fed index, showed an improvement in the sector. Various analysts commented that the data combo underscores the K shaped economic recovery currently underway in the US; in other words, low wage service sector employees and the service sector more broadly is being absolutely devastated by the pandemic, while consumption shifts away from experiences and towards psychical goods, which underpins the manufacturing sector, and loose monetary policy pumps the housing market, further widening the gap between the economic haves and have nots. This dynamic ought to underscore the need for more fiscal and monetary stimulus in the eyes of the policymakers pulling the strings in the US right now.

In terms of bond markets and what they are doing to drive gold prices; 10-year break-even inflation expectations rose about 3bps to above 2.13% on Thursday, their highest levels since late 2018. However, 10-year TIPS yields were up just over 2bps on the day, offsetting any impetus that precious metals might normally derive from rising inflation bets.

Spot gold key levels