Gold Expected To Recapture $2000 Mark Despite Buoyant Us Yields, Stronger USD

The Gold Price remains poised to recapture $2,000, and trades around 1.0% higher on the day. Elevated inflation, recession risks and the Russia-Ukraine war continue to boost the precious metal safe-haven appeal.

This week’s speech from Fed Chair Jerome Powell will keep precious metal traders on their toes. Gold prices came within a whisker of hitting the $2,000 level on Monday after hitting session highs at $1998.46 earlier in the day. At current levels in the lower $1990s, the precious metal is currently trading with on-the-day gains of around 1.0%.

Gold is outperforming in tandem with other precious metals despite the fact that US yields and the US dollar continue to trade firmly on the front foot as traders still price in a more aggressive approach to monetary tightening from the Fed. Normally this would have a negative impact on the yellow metal, but this linkage has seemingly been largely broken in recent weeks.

“We are of the view that the Fed is broadly in-sync with the move toward the vicinity of neutral by the end of 2022, with Governor Brainard supporting that view recently. Chair Powell’s remarks in an IMF panel on the global economy will get the focus of the attention.

While the Fed is signaling its intent to reach neutrality by year-end, and to start an aggressive QT regime, outflows from gold markets have been scarce as participants are happy to retain some optionality against the Fed’s stated plan amid growth concerns.

Indeed, heads of both the IMF and World Bank have in recent days announced that global growth forecasts will be downgraded amid the stagflationary impulse of the Russo-Ukraine war. With news over the weekend pertaining to the Russo-Ukraine conflict negative (peace talks look on the verge of collapsing), geopolitical risk and ongoing demand for inflation/stagflation protection looks set to continue supporting gold.

Stagflationary risks from China are also noted, with the country still battling a persistent Covid-19 outbreak and Shanghai still under strict lockdown, and in Europe, which is feeling the pressure to toughen energy sanctions on Russia.

Looking ahead, investors will now focus on the speech from the St. Louis Fed President and FOMC member James Bullard at 2100BST on Monday for further insight on the outlook for Fed policy. Bullard is one of the bank’s most hawkish and has called for interest rates to reach 3.0% this year. The mega event of the week will be a speech from Fed Chair Jerome Powell later this week, where he is expected to solidify expectations for a 50 bps rate hike at the coming Fed policy meeting.

Technically, the bulls are in control and taking on fresh highs. On a daily scale, XAU/USD has tested the breakout of its previous critical level at March 24 high $1,966.18 multiple times. The 20- and 50-Exponential Moving Averages (EMAs) are scaling higher, adding to the upside filters. The momentum oscillator Relative Strength Index (RSI) (14) has overstepped 60.00, which indicates a firmer bullish momentum going forward.