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  • It’s been a subdued session for spot gold prices which have traded within thin $1850-$1860 ranges.
  • USD was weaker, but the market’s risk-on vibe weighed on gold.
  • XAU/USD traders are looking ahead to key events later in the week.

It’s been a subdued session for spot gold prices (XAU/USD), which have traded within thin $1850-$1860 ranges throughout the entire day despite a softer US dollar. The buck was weighed in line with other safe-haven currencies and apparently also precious metals markets amid an improvement in the market’s appetite for risk given the latest positive vaccine updates. Meanwhile, bond market signals have not been very strong (note that movements in US real yields and inflation expectations are a key driver of precious metal price action). Ahead of the close of US trade, the precious metal trades around 0.2% or $3 lower on the day.

Driving the day

The positive turn in risk appetite, which seemed to keep a lid on any potential XAU/USD gains as a result of US dollar weakness, was seemingly spurred by an improvement in the tone of news regarding vaccines;

namely, Moderna and Pfizer announced that they are looking into Covid-19 booster shots (another shot to come a few months to a year after the initial two shots) that would specifically be targeted at maintaining/building immunity to variants of the virus such as that discovered in South Africa a few weeks ago. Meanwhile, the CFO of Johnson & Johnson (J&J) said earlier in the day that they expect to release Covid-19 vaccine trial data next week and that the company is very optimistic that they will be releasing a very robust data set. J&J’s vaccine is being touted as a “game-changer” in the vaccination race as it would only require one shot to acquire full immunity.

Bond market signals

While short-end US real yields remain at all-time lows (the 5-year TIPS yield currently trades at under -1.78%), long-end real yields saw modest upside (the 10-year TIPS yield moved higher by about 1bps to above -1.03% and the 30-year TIPS yield moved about 3bps higher back above -0.30%). Thus, 10 and 30-year inflation break-evens dropped back modest on Tuesday. However, both remain close to recent highs, both still comfortably above 2.0%. Note that rising real yields and falling inflation expectations are usually a negative for precious metals, though Tuesday’s moves were modest. A trend will likely need to reassert itself for bond markets to start having a material impact on precious metals markets again.

Coming up this week

Subdued gold price action is to be expected ahead of key risk events later this week; firstly, the FOMC release their latest monetary policy decision on Wednesday. The bank is likely to reiterate its ultra-dovish stance on policy and Powell is likely to continue to push back against the notion of an imminent tapering of the Fed’s asset purchase programme as he did when speaking earlier in the month.

The very next day, preliminary US Q4 2020 GDP numbers will be released and markets will get to see 1) how the US performed in 2020 as a whole relative to expectations and 2) what kind of economic momentum did the US economy carry into Q1 2021. With the latest round of stimulus only agreed at the end of Q4 2020, its positive impact will be felt in Q1 2021.