Gold Prices Cede Ground as Omicron Fails to Charge Breakeven Rates

Gold, XAU/USD, Omicron, Breakeven Rates, Technical Outlook – Talking Points

• Gold prices extending overnight losses in APAC trading
• Omicron lifts breakeven rates but probably not enough
• XAU/USD’s Technical posture looks to advantage bears

Gold prices hit the highest level since November 22 overnight before the yellow metal trimmed gains and shifted lower. A modest rebound in the US Dollar due to a bout of risk aversion on Wall Street likely weighed on prices. A stronger Greenback makes the metal more expensive for foreign buyers, which dissuades overall demand.

Bullion prices are extending losses through Asia-Pacific trading, although selling appears to be marginal. Gold has been trending higher since December 15, when the November swing low was quickly breached. Since then, the psychologically important 1800 level was overtaken while the US Dollar has largely consolidated just below its yearly high when looking at the DXY index.

A rise in inflation expectations, along with the pause in USD strength, has helped gold gain its footing in recent weeks. US breakeven rates – which measure the gap between nominal and inflation-adjusted yields – have risen over the last week, although they remain below levels seen in early December. The 2-year breakeven rate is trading near 3.156% from the December low, which was 3.025%.

The Omicron variant is likely providing inflation expectations a tailwind as some fear widespread lockdowns and tighter social distancing measures may exacerbate ongoing supply chain issues, which could drive up prices. However, with Covid fears starting to subside – despite a significant increase in daily cases across key economies – those inflation expectations may soon lose steam. That would work to gold’s detriment seeing as breakeven rates have failed to close the gap with levels earlier in December.

XAU/USD Technical Forecast

Gold is back near the 200-day Simple Moving Average (SMA), with the 1800 psychological level in focus as well. A Rising Wedge pattern is also taking shape, opening the door for a potential breakdown below support. If prices manage to avoid that and hold above 1800, it may open the door for gold to test a level just above 1830 that served as major resistance from July To September. MACD and RSI are oriented sharply lower. Overall, it appears the path of least resistance may be to the downside.

XAU/USD 4-Hour Chart

Chart created with TradingView

— Written by Thomas Westwater, Analyst for DailyFX.com

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