Author: Mr. Amar – Technical Analyst

XAU/USD rose sharply yesterday and has resided at the previous support level which now acted as resistance at around $1822. The yellow metal jumped the most since late January the previous day as downbeat prints of US inflation expectations, portrayed by the 10-year breakeven inflation rate per the St. Louis Federal Reserve data, challenge the hawkish Fed concerns. Also recently underpinning the gold’s upside momentum are the receding fears surrounding the imminent Russia-Ukraine war and optimism concerning the US-Japan steel trades. However, worsening Covid woes in Japan and Hong Kong, not to forget the US-China trade tussles, challenge the market optimism.

Inflation expectations have eased recently, reflected by falling breakeven rates, although this week’s US CPI report may revive the overall outlook over rising prices. Chartists expect to see a 7.3% rise for January’s data due out later this week. That would be the highest rate of inflation seen since 1982. A better-than-expected print would likely further fuel Fed rate hike bets. While on face value that would be bad for gold, it could be worse for the equity market, which is highly sensitive to rate changes as they eat into the present value of future cash flows.

Other than that, if this week’s CPI print does firm up those bets and the equity market also reacts negatively, it may benefit bullion prices, as investors would likely shift to haven assets. The benchmark 10-year Treasury note’s yield has risen sharply over the last several weeks. Gold’s ascent amid those higher yields supports the view that it remains attractive as a hedge against volatility. It’s also worth keeping an eye on tensions on the Ukrainian border, as an escalation may bolster prices further, given that a geopolitical event could spark more selling across risk-sensitive assets.