Gold firmer around $1860 despite hawkish signals

Gold remains firm at around $1860 despite hawkish signals
On Friday, gold prices remain firm at around $1860 per ounce after hitting a week-to-date new low of $1852.45 due to expectations regarding the next move by the US central bank and whether it would raise rates by 25 bps in the next two monetary policy meetings.

The US Dollar and US Treasury bond yields are reaching fresh 5-week highs, this is an important factor that is capping the advancement of the precious metal. At the time of writing, the Gold Index (XAU/USD) is trading at $1858.90, above its opening price by 0.20%.

The Gold Index XAU/USD spiked toward its daily highs on US consumer sentiment. Wall Street continues to trade mixed, with the Nasdaq 100 being the outlier, losing more than 0.50%. A poll by the University of Michigan reported that American Consumer Sentiment exceeded estimates of 65 and rose by 66.4, showing an improvement in financial conditions.

Inflation expectations for a one-year horizon increased by 4.2% from 3.9% reported on January’s final reading, while for a 5-year horizon, it stood unchanged at 2.9%. XAU/USD’s reacted on the data, reaching as high as $1866.80, though retraced towards current prices.

Fed officials during the week stated that more rate hikes are coming as the US central bank battles to curb inflation. New York Fed President John Williams commented on moving the Federal Funds rate (FFR) to 5%-5.25%. At the same time, Minnesota’s Fed President Neil Kashkari, a voter in the FOMC in 2023, said that the FFR needs to go as high as 5.4%.

Echoing some of their comments was Lisa D. Cook, who said that it’s appropriate to move in “smaller steps” while the Fed assesses the effects of cumulative tightening. Later the Richmond Fed President Thomas Barkin said that the Fed is “unequivocally” hitting the brakes on the economy.

US Treasury bond yields continued to underpin the US Dollar (USD). The 10-year benchmark note rate is up six bps, at around weekly highs of 3.728%, a headwind for XAU’s prices. The US Dollar Index (DXY), which tracks the buck’s value vs. a basket of peers, advances 0.37% daily, up at 103.57.

Technically; XAU/USD’s daily chart portrays the yellow metal as neutral-to-downward biased, though the consolidation around $1860 and a subsequent break could pave the way for further losses. However, the 50-day Exponential Moving Average (EMA) at $1856.50 could cap Gold’s fall. Next support lies at the December 27 high-turned-support at $1833.29, followed by the 100-day EMA at $1816.91.