Author: Sir Amar – Technical Analyst

Gold (XAU/USD) prices freshen up intraday lows near $1795 as a firmer US dollar weighed on the key asset during Monday’s Asian session. However, poor sentiment and catalysts from China are adding to cautious market sentiment ahead of this week’s Federal Open Market Committee (FOMC) minutes to boost the dollar of late. Gold prices ended the week about 1.5% higher after prices rose on Friday on softening Treasury yields. Traders processed consumer price index (CPI) and producer price index (PPI) inflation data throughout the week, with both indicators cooling from the previous month.

The US Dollar Index (DXY) is licking the wound around 105.75 as a wave of risk aversion underpins safe-haven demand for the dollar. Fed officials’ reluctance to tout lower inflation recently, as well as economic fears emanating from China and Europe, are also keeping the dollar firmer. Over the weekend, news that many US lawmakers are visiting Taiwan following House Speaker Nancy Pelosi’s visit seemed to heighten fears over US-China tensions, which in turn once impacted gold prices.

Gold-sensitive nominal and inflation-linked yields ended the week slightly higher across much of the curve, despite renewed demand for Treasuries on Friday. The University of Michigan consumer confidence survey showed that near-term inflation expectations have cooled.  1-year inflation expectations fell to 5.0% from 5.2%, likely reflecting lower gasoline prices. Gold does not bear interest, making government bond yields a factor in its price. A normalization of short bets against XAU could bring further headwinds to prices.