Gold Price Analysis: XAU/USD slides under $1800 as real yields surge post-hawkish Fed minutes

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  • Spot gold prices have been choppy on Thursday and current trade around $1790, down over 1.0% on the day.
  • Real yields have been surging in wake of Wednesday’s hawkish Fed minutes and this is weighing on precious metals.

Trading conditions in precious metal markets have been choppy in recent trade, though bearish momentum in wake of Wednesday’s hawkish Fed minutes seems to be winning through for now. Spot gold (XAU/USD) prices have tumbled from Asia Pacific session levels in the $1810 area to current levels (and session lows) around $1790, with on-the-day losses currently standing at just over 1.0%. A late-European morning rebound that saw spot prices rebound from the mid-$1790s to near the $1810 level again ultimately proved nothing more than an intra-day dead-cat bounce and a good opportunity for gold bears to add to short positions.

On its way lower to test the $1790 area, XAU/USD has fallen through a succession of key moving averages (the 21, 50 and 200DMAs which all reside between $1797 and $1805). But the bears have so far not been able to send gold prices decisively underneath support in the form of recent lows, including last week’s low at $1789.50 and the low from the week before at $1785. Should these lows go, bearish technicians will likely target a swift test of December’s sub-$1760 lows.

Selling pressure in gold markets has not come as a surprise to many analysts who observed US real yields, with which gold typically has a tight negative correlation, surging in wake of Wednesday’s Fed minutes. Short-Term Interest Rate markets have busily been bringing forward bets as to when the Fed’s rate-hiking cycle will get underway and how high the bank will ultimately take rates. But with markets also increasingly buying into the Fed’s bullish economic outlook, this added dose of Fed hawkishness has not been depressing long-term growth and inflation expectations. The net result is surging real yields and the 10-year TIPS yield notable surged to its highest level in over six months on Thursday above -0.80%. When the 10-year TIPS yield was last close to the 0.80% level back in September, XAU/USD was trading under $1750.

For spot gold’s losses to really accelerate, the US dollar is likely going to need to pick up a little more from current levels. The DXY remains locked within the 95.50-96.90ish range that has prevailed now for multiple weeks, despite recent upside in yields and downside in stocks in wake of the hawkish Fed. If the dollar does start kicking higher (perhaps Friday’s US jobs report could be a catalyst), that combined with higher real yields could be a big bearish risk for gold.