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Market update: XAU/USD eyes prior all-time high amid elevated tensions

USD drifts higher while yields appear vulnerable to further downside and gold hints at bullish continuation but key psychological level keeps prices at bay.

Source: Bloomberg

USD drifts higher while yields appear vulnerable to further downside

The US dollar started the week on the right foot, although the early Monday rise was certainly nothing to brag about. The greenback has not only managed to remain supported but looks to build on Friday’s gains at the start of a holiday-affected week. In observance of Martin Luther King Day, major US markets are offline and will only open tomorrow.

Despite considerable headwinds, the US dollar defies all challenges to trade higher on Monday (at the time of writing). US yields head lower and markets bring forward expectations of the first US rate cut, which could arrive as soon as March, potentially including 25 basis-point cuts at every meeting until December.

The chart below highlights the US 2-year Treasury yield as it appears vulnerable to further declines as rate cut projections gain traction.

US 2-year Treasury yields decline with greater momentum

Source: TradingView

Gold hints at bullish continuation but key psychological level keeps prices at bay

Gold prices have recovered after steadily declining within the blue descending channel, now attempting to break out of the channel, but the $2050 level could keep a bullish continuation at bay for now.

$2050 is a significant level as it provided weekly highs in August 2020 and April 2023 and obviously carries psychological significance too. That being said, gold has shown to be susceptible to large spikes to the upside by virtue of its safe-haven appeal during a period of elevated geopolitical instability, which could render $2050 ineffective.

The MACD indicator hints at a bullish crossover, suggesting upside momentum is building. In addition, the 50-day simple moving average also acts as dynamic support – propelling lower prices. The prior all-time high of $2081.80 is the next level of resistance.

Gold (XAU/USD) daily chart

Source: TradingView

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The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

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