Gold Price Outlook: XAU/USD at Risk as US Dollar, Treasury Yields, Inflation Gain

[MongiIG]

GOLD, XAU/USD, US DOLLAR, CPI, INFLATION, TREASURIES, TECHNICAL ANALYSIS - TALKING POINTS:

• Gold prices weakened despite another 40-year high US CPI print
• Rising US Dollar & Treasury yields take away XAU/USD’s appeal
• Dark Cloud Cover on the XAU/USD daily chart also offers warning

Gold prices cautiously weakened over the past 24 hours following a much higher-than-expected US CPI report for January. This is as the core gauge, which excludes volatile food and energy prices, increased 6.0% y/y versus 5.9% anticipated. Despite the boost in hourly earnings from January’s US non-farm payrolls report, real hourly wages, that factor in inflation, were -1.7% y/y versus -2.0% prior.

Some view gold as an inflation hedge, but XAU/USD continues to trade around levels seen in the summer of 2020, much before inflation started taking off in the United States. The non-interest-bearing yellow metal is competing with the rising US Dollar and Treasury yields. Short- and long-term rates soared after the inflation data. The 2-year surged to 1.64% as the 10-year rallied above 2.00%.

Following the release, a couple of Fed speakers expressed concern about the outcome, boosting the odds of a 50-basis point rate hike in March. Richmond Fed President Thomas Barkin noted that he was conceptually open to it. St. Louis Fed President James Bullard openly mentioned that he is in favor of what could be the first half-point rate hike since 2000.

With that in mind, gold could experience choppy price action as the week wraps up. University of Michigan Sentiment is on tap for Friday where traders will be tuning in for inflation expectations. Further, keep an eye out for emerging Fed commentary that solidifies the case for a 50-basis point rate hike next month. Continued US Dollar and bond yield strength risks derailing gold.

GOLD TECHNICAL ANALYSIS

XAU/USD has left behind a bearish Dark Cloud Cover candlestick pattern. This is as prices struggled to clear the 1827 – 1834 inflection zone. A downside confirmatory close may open the door to extending losses ahead. That is when rising support from August could come into play – red lines on the daily chart below. Otherwise, the January high at 1853.83 will be a key resistance point to monitor.

 

XAU/USD DAILY CHART

Chart Created Using TradingView

--- Written by Daniel Dubrovsky, Strategist for DailyFX.com