Gold Price Analysis

Gold (XAU/USD) reverses the early Asian session gains, stays around the late January high tested the previous day, while easing to $1,869 as markets in Tokyo open for Wednesday. Although S&P 500 Futures weigh on gold prices, with 0.30% intraday losses by the press time, broad US dollar weakness keeps the commodity buyers hopeful.

Behind the gold‘s latest moves could be fears of the Indian variant of the coronavirus (COVID-19) and the cautious sentiment ahead of the US Federal Open Market Committee (FOMC) meeting minutes. Also, mixed sentiment concerning the Fed’s next move amid relfation fears add to gold traders confusion. Hence, gold bulls need upbeat FOMC minutes and trade-positive sentiment to keep the recent gains.

Gold prices have been on the bid towards the middle of the week, ending on Wall Street some 0.12% as measured by XAU/USD.

The US dollar has been out of favour with the bulls and fell on Tuesday for the fourth straight session.

As measured by the DXY, the index, which is a measure of the USD vs a basket of currencies, fell to the lowest level since late February.

The dollar index DXY was last down 0.46% at 89.781.

The markets are less fearful that the Federal Reserve will act upon risks to higher inflation and raise interest rates sooner than anticipated.

Meanwhile, US Treasury yields have stalled. The 10-year yield on Tuesday was ending the North American session down by 0.72% falling from a high of 1.657% to a low of 1.627%.

Several Fed policymakers slated to speak this week at the same time that the Fed is due to release the minutes from its April policy meeting on Wednesday, all of which will be parsed for any signs of a shift in its economic outlook.

The easing of measures to contain the pandemic have lifted higher-risk assets and counterintuitively, precious metals as well, as the greenback, melts away, giving was to higher beta currencies, such as the Aussie, that stand to benefit most from economic revival.

With investors sounding the alarm over inflation, institutional interest in the precious metals complex is likely to continue rising following months of outflows, analysts at TD Securities argued.

TD Securities expects this period of high inflation to prove transitory, but there remains a substantial amount of uncertainty surrounding the path for inflation.

''Nonetheless, gold is also underperforming against periods of high inflation, which fuels our conviction for upside risks in the yellow metal,'' the analysts said.

As for positioning, money managers ultimately increased their net length.

The US jobs market recently disappointed in the Nonfarm payrolls print and analysts at TD Securities argued that this catalyzed a round of algorithmic short-covering, helping prices to break out north of the $1800/oz range. ''At the same time, we've noted that the composition of gold flows is changing, highlighting that discretionary capital could once again be flowing into gold.''

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