XAU/USD stands at a two-month high of $1,845 despite more steady yields
Gold prices maintain previous rally momentum as it sits near fresh two-month highs of $1,844 set in early Asia. The upside potential for the shiny metal remains intact although continued strength is seen around the on-curve US Treasury yields. Gold prices benefited from soaring inflation in the UK and Germany as investors boosted demand for gold as an inflation hedge. Meanwhile, US President Joe Biden also called on the Fed to curb the fastest inflation rate in decades.
Going forward, the US Dollar valuation and yield price action will continue, with all eyes on the final Eurozone CPI release. Weekly US data on jobless claims and existing home sales may also provide trade incentives. Gold (XAU/USD) from yesterday’s spike around $1,839, is down 0.22% on the day in the early Asian session as market sentiment deteriorates.
The yellow metal rallied to a two-month high on Wednesday after US Treasury yields retreated from multi-day highs and engulfed the US dollar. However, the latest speech by US President Joe Biden has revived hopes of a faster Federal Reserve normalization of monetary policy, thereby boosting bond purchases and pull the price of gold higher. US President Biden highlights efforts by chief trade negotiator Katherine Tai to quell Sino-US trade disputes. However, he also mentioned that the US “has not yet achieved the ability to ease tariffs on Chinese products”. Biden also said, “China doesn’t live up to their purchase commitments.”
In addition, the comments in favor of the US Federal Reserve Chairman Jerome Powell’s efforts to re-adjust the support level also raised concerns about accelerating the pace of interest rate hikes and normalization balance sheet, thereby adding downward pressure on gold prices.
In addition, US President Biden also directly warned Russia not to invade Ukraine and that if it did; it would lose access to the US dollar. Elsewhere, uncertainty surrounding US stimulus measures and upcoming moves by the People’s Bank of China (PBOC) also weighed on gold prices. US President Biden has signaled that Build Back Better (BBB) stimulus talks are underway, but US Senator Joe Manchin dismissed the comments. Additionally, the PBOC is set to make a rate decision at 01:30 GMT, with market participants evenly split between initial signals of a rate cut from China’s central bank and latest comment from PBOC Deputy Governor, Liu. Guoqiang. The PBOC official mentioned that the central bank “will keep the yuan exchange rate essentially stable.”
Against this backdrop, the yield on the 10-year US Treasuries rose 4.5 basis points (bps) to 1.87%, while S&P 500 futures fell 0.15% on the day, suggesting a lack of sentiment latest positive. Even so, gold prices are trading above a key near-term resistance level and so today’s PBOC ruling, as well as risk catalysts, will have important implications for the clocks in Asia. Then, US Jobless Claims, the Philadelphia Fed Manufacturing Survey for January and Existing Home Sales for December will keep gold traders entertained afterwards.