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  • Gold prices have been pressure back to lows of the day around $1870 in recent trade.
  • A combination of risk-on and USD strength has hurt the precious metal.

Spot gold (XAU/USD) prices are over $6 lower on the day or down around 0.4% and trading close to lows of the day in the $1870s heading into the Monday FX close at 22:00GMT. To the downside, the 50-day moving average at $1869.77 has helped provide support and ensured that the losses haven’t been even deeper, but mild gains in the US dollar have broadly kept spot gold prices on the back foot.

Safe-haven gold suffers amid risk on market vibes

US equity markets just closed at record highs amid a “Santa” rally after US President Donald Trump signed the $2.4T US spending package ($900B in Covid-19 aid and a $1.5T omnibus government spending package for 2021) into law, backing off from his threats to veto the bill over the direct payments being too small and the bill containing unnecessary components. The S&P 500 closed 0.9% higher, the Dow Jones 0.7% higher and the Nasdaq 100 1.0% higher, amid gains in heavyweight tech stocks (Amazon closed up 3.5%, Apple up 3.6% and Facebook and Alphabet closed with gains of more than 2% each).

Whilst risk-on vibes were being felt in the stock market, other asset classes showed a more mixed picture; in FX markets, the US Dollar Index (DXY) looks set to finish the day with marginal gains, with the USD having risen against all of its G10 major counterparts aside from EUR and CHF. Meanwhile, US bond yields dropped into the close with the nominal 10-year yield falling 0.7bps to 0.923% and the 10-year TIPS yield dropping to lows at -1.056%. Meanwhile, US 5 year breakeven inflation expectations dropped back from mid-session highs of above 1.94% to closer to 1.92%.

So mixed signals for gold from the bond market then (nominal and real yields dropping, which is typically positive for gold but inflation expectations backing off, typically negative for gold). The unfavourable for gold combination of USD strength and risk on has thus won out and put the precious metal under pressure. Other precious metals have seen more mixed trade, with spot silver up 1.7% to well above $26.00 and spot platinum up 0.6% to above $1030, while spot palladium is lower by about 0.3% and under $2340.