Gold price outlook: XAU/USD Bulls bullish amid weak US dollar in Asia
Asia’s gold is rallying as the US dollar offset some of its overnight gains as the US dollar breaks new cyclical highs following the re-election of Fed Chairman Jerome Powell. According to ANZ Bank analysts, the market immediately began pricing in relation to a gradual reduction in asset purchases and interest rate hikes through June. “This caused gold to plummet after 10-year Treasury yields raised more than 8 basis points.”
Meanwhile, yellow metals were supported by rising idle winds. “This ultimately catalyzed the company to break out of a months-long decline from historical highs, driven by a significant wave of CTA short coverage and growing Chinese demand for gold, explained analysts at TD Securities. “But we do note that the battle between high inflation and market prices caused by central bank inflation is not over.”
Going forward, the Fed minutes will be events for the dollar and yellow metal. Markets will be looking for new clues as to when to raise interest rates on how quickly the Fed can shrink. “The protocol will undoubtedly reflect a variety of risk perspectives, but most officials don’t think they will be in a hurry to raise rates given the massive net job loss and expected slowing inflation, said analysts at TD Securities.
Gold (XAU/USD) protects the $1,800 threshold after its worst daily decline in 10 weeks. However, the yellow metal pushed its bid to $1809 in Tuesday’s early Asian session.
The decision of US President Biden to appoint Jerome Powell as Fed Chairman and Richard Clarida as Vice Chairman supported the mood among market participants the day before. Trader enthusiasm has boosted U.S. Treasury yields on hopes of faster contraction and rate hikes in 2022, which in turn propelled the U.S. Dollar Index (DXY) to new multi-day highs and lowered gold prices.
Gold was impacted by stronger US manufacturing and housing data released on Monday. The Chicago Federal Reserve Bank’s National Activity Index rose to 0.76 from 0.18% in October (down-corrected). Also, U.S. home sales last month beat forecasts of 6.2 million and beat previous data by 6.29 million to 6.3 million. It’s worth noting that
US Treasury Secretary Janet Yellen ruled out inflation concerns like the 1970s and allowed gold traders to lick their wounds for around $1,800.
Nevertheless, inflation concerns remain valid as billions of dollars of stimulus to the US economy are just around the corner. It also hints that the market will press against the US dollar due to its safe nature as well as new fears about the eurozone COVID-19 threaten continuing global supply chains and further escalating inflationary pressures.
Under these circumstances, the 10-year U.S. Treasury yield rose more in one day than the previous week’s loss, and DXY reached a new high since July 2020. And it will be important for the US to follow the new momentum.