- Spot gold prices moderated on Thursday back to the $1860 level, despite a softer dollar and yields.
- Gold has been tracking US inflation expectations more closely recently, which fell back on Thursday.
Spot gold (XAU/USD) prices fell 0.5% on Thursday, despite a weaker dollar and softness in US bond yields. Prices topped out at $1870 during the Asia Pacific session and have been gradually easing ever since. At just below $1860, spot gold is only about 1.0% below the six-month highs at $1877 that it printed earlier in the week.
The move lower in gold prices came despite a pullback in the US dollar and further downside in US real and nominal yields. Starting with the former, after hitting 16-month highs earlier in the week above 96.00, the DXY has been pulling back amid broad USD profit-taking. Typically, a weaker dollar is a positive for dollar-denominated gold prices, as it makes it cheaper for purchase by the holders of non-dollar currencies.
US data continues to beat expectations, with Thursday’s initial jobless claims release showing claims dropping to a new post-pandemic low and the Philly Fed Manufacturing survey matching the NY Fed released earlier in the week for strength. Strong US data should keep the dollar underpinned in the months/weeks ahead.
Meanwhile, US bond yields have also been losing steam, with 10-year yields back under 1.60% having printed three-week highs at 1.65% earlier in the week. As with the dollar, this is partly profit-taking driven, though some also attributed the downside to lower inflation expectations in wake of the recent pullback in oil prices and a broader moderation in expectations for oil prices in 2022.
Indeed, gold seems to be trading more highly correlated to US inflation expectations right now than to the US dollar or US yields, as would more normally be the case. Since last week’s much hotter than expected US Consumer Price Inflation report, gold prices spiked amid demand for inflation protection. The move higher mirror a move higher in US 5-year break-even inflation expectations, which surged from close to 3.0% to record highs (going back to when the 5-year TIPS started trading in 2004) above 3.30% this week. That move above 3.30% no Tuesday coincided with gold’s highs of the week. Since then, 5-year break-even inflation expectations have moderated back to 3.20%, seemingly weighing on gold.
Note: All information on this page is subject to change. The use of this website constitutes acceptance of our user agreement. Please read our privacy policy and legal disclaimer. Opinions expressed at FXstreet.com are those of the individual authors and do not necessarily represent the opinion of FXstreet.com or its management. Risk Disclosure: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.
Recommended content
Editors’ Picks
EUR/USD treads water just above 1.0400 post-US data
Another sign of the good health of the US economy came in response to firm flash US Manufacturing and Services PMIs, which in turn reinforced further the already strong performance of the US Dollar, relegating EUR/USD to the 1.0400 neighbourhood on Friday.
GBP/USD remains depressed near 1.2520 on stronger Dollar
Poor results from the UK docket kept the British pound on the back foot on Thursday, hovering around the low-1.2500s in a context of generalized weakness in the risk-linked galaxy vs. another outstanding day in the Greenback.
Gold keeps the bid bias unchanged near $2,700
Persistent safe haven demand continues to prop up the march north in Gold prices so far on Friday, hitting new two-week tops past the key $2,700 mark per troy ounce despite extra strength in the Greenback and mixed US yields.
Geopolitics back on the radar
Rising tensions between Russia and Ukraine caused renewed unease in the markets this week. Putin signed an amendment to Russian nuclear doctrine, which allows Russia to use nuclear weapons for retaliating against strikes carried out with conventional weapons.
Eurozone PMI sounds the alarm about growth once more
The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.