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  • Spot gold has been on the back foot on Tuesday, weighed by the stronger US dollar and losses in silver.
  • For now, the precious metal has bounced at the bottom of its recent $1830s-$1870s range.

Spot gold (XAU/USD) has been under pressure on Tuesday, slipping from Asia Pacific levels comfortably above the $1850 mark to fresh two-week lows of just under $1830. At present, the precious metal is trading closer to $1840, down about $20 on the day or roughly 1.2%.

Driving the day

USD strength is the main factor weighing on gold markets on Tuesday; the Dollar Index rallied above 91.00 and to fresh two-month highs. No specific factor has spurred the rally in USD; risk appetite is very strong on Tuesday with solid gains being seen in stocks and crude oil markets (typically a negative for the safe-haven US dollar). USD strength is being attributed to a combination of position adjustment (shorts taking profit) and weakness elsewhere (such as in EUR, GBP and silver).

Gold is also falling in sympathy with a pullback in silver markets, as the recent sudden surge in retail investor demand for the silver metal subsides following silver future margin requirement hikes at the Chicago Mercantile Exchange (CME), a move analysts say is designed to take some of the froth out of the market. Note, the CME also hiked margin requirements for gold.

Bond market signals remain broadly supportive of the complex; short-end US real yields fell to fresh all-time lows on Tuesday, with the 5-year TIPS yields dropping below -1.83% and the 10-year TIPS yield remaining relatively close to all-time lows and is little moved on the day under -1.0%. Meanwhile, Inflation expectations remain elevated (5-year break-evens are at 2.2122% and 10-year break-evens at 2.1207%).

XAU/USD testing the bottom of its recent range

XAU/USD is testing the bottom of its range over the past two or so weeks; over this period, price action has been for the most part constrained between the $1830s and $1870s. A break below the bottom of this range, which so far remains elusive and would likely require a further pick up in US dollar strength, would open the door to a test of the January low of just above the $1800 level.

XAU/USD four hour chart