XAU/USD Primed for the Next Leg Higher

Gold Price (XAU/USD), Chart, and Analysis

• Financial markets disagree with the Fed’s ‘higher for longer’ narrative.
• Higher highs and lows keep the precious metal moving higher.

Gold is ending the week on a high after data painted a mixed picture of the health of the US economy. The latest US jobs report showed better-than-expected job creation but the hourly earnings data showed wage growth slowing, something the Fed will have taken notice of. And the latest US ISM non-manufacturing release will also have registered with the Fed, and rung alarm bells, as it unexpectedly fell back into contraction territory in December. This is the first contraction in the US services sector since May 2020 when global economies were being roiled by covid.

Hawkish vs Dovish: How Monetary Policy Affects FX Trading

The yield on the closely-watched UST 2-year fell sharply post-ISM release. Gold has been closely tied to short-dated US bond yields with any rise in yields forcing a drop in the price of gold and vice versa. With rate hike expectations in the US being pared back – the probability of a 25 basis point hike at the February meeting is now at 76% – the markets are challenging the Fed’s authority.

US Treasury 2-Year Bond Yield – January 6, 2023

With the US dollar weakening and bond yields falling, the precious metal is set to print a fresh multi-month high in the near term. The daily chart shows a recent trend of higher highs and higher lows and the 50-day ma average is set to break above the 200-day moving average, in turn making a bullish ‘golden cross’. The next level of resistance, at just under $1,880/oz. is likely to come under pressure and a confirmed break above here should see gold trade with a $1,900/oz. handle shortly.

Gold Daily Price Chart – January 6, 2023

Charts via TradingView

Retail Trade Data is Mixed

Retail trader data show 67.08% of traders are net-long with the ratio of traders long to short at 2.04 to 1.The number of traders net-long is 5.14% higher than yesterday and 1.21% lower from last week, while the number of traders net-short is 10.72% lower than yesterday and 9.67% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Gold prices may continue to fall. Positioning is more net-long than yesterday but less net-long from last week. The combination of current sentiment and recent changes gives us a further mixed Gold trading bias.

What is your view on Gold – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.