Gold prices ended January with a whimper after a promising break above key resistance. Bullion faces conflicting fundamental drivers, but Friday’s US non-farm payrolls report may offer direction. Get your market update from FxWestwater here:
index gained 1.89%. A weaker US Dollar typically helps gold prices, as it makes the metal cheaper for foreign purchasers. These conflicting tailwinds and headwinds for XAU make calling a direction rather difficult.
The US Dollar is taking a breather, but the Federal Reserve is well on course to raise interest rates this year, perhaps as much as 100 basis points, according to current market pricing through overnight index swaps and Fed fund futures. That would likely bring the US Dollar higher as short-term Treasury yields increase amid the Fed’s tightening policy.
An important question to gauge gold’s direction may be: will US equity prices continue to rise alongside rising rates? That’s anyone’s guess, but if equity prices do weather higher rates and continue to rise, it would likely bode poorly for gold. Higher rates in of themselves are bad for gold. There is reason to believe that gold serves as an inflation hedge, but that isn’t a sure thing even if inflation remains sticky.
That said, bullion traders will have to be very tactical in the coming days and weeks, considering the current backdrop. A potential Russian incursion against Ukraine would likely boost prices. Another potential gold driver is this week’s US non-farm payrolls report . January’s NFP print is expected to be rather light at +150k, according to Bloomberg. That would be down from December’s 199k addition. Omicron impacts likely weighed on job growth last month.
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