XAU/USD posting its largest drop

Gold Price Analysis: XAU/USD consolidates below $1800

• Thursday was not a good day for gold, with XAU/USD posting its largest drop since 8 January.

• At present, XAU/USD trades marginally above those earlier lows in the mid-$1790s.

Thursday was not a good day for gold; spot gold prices (XAU/USD) posted their largest drop since 8 January to fall from the $1830s to as low as $1785, a drop of over 2% on the day, the first time the precious metal had slipped beneath this psychological level since November 2020. At present, XAU/USD trades marginally above those earlier lows in the mid-$1790s. The 18 January low at $1802.95 will likely offer some resistance should the precious metal manage to reclaim $1800.

Gold bulls fade

Current market conditions have not been favourable for gold; the US dollar (to which gold and other precious metals typically have a negative correlation) has been rallying for most of the week. US equity markets and crude oil have also been firmly on the front foot all week (strength in these risk assets is typically not great for safe-haven gold). Meanwhile, real yields have been going sideways and the US yield curve has been steepening (typically falling real yields are needed to pump gold prices higher).

Granted, inflation expectations have risen, which would typically be a gold positive, but this move higher seems to be being driven by strong US data, US stimulus optimism and pandemic optimism, all of which seems to suggest that the market might have already seen the Fed reach peak dovishness. If all of these positives lead the Fed to start tightening monetary policy a little earlier than expected, real yields will rise and gold could be hammered. Fears such as these appear to be keeping precious metals on the defensive for now.