Gold Price Analysis: XAU/USD rallies back towards weekly highs at $1820 as real yields fall/inflation breakevens rise By Frank_Macro XAUUSD Gold
ust above $1815, spot gold is on course to close out the session about $13 or roughly 0.7% higher. A strong weekly US jobless claims report, that showed initial claims dropping back under 200K and continued claims falling to just above 1.7M does not seem to have weighed on the precious metal.
Typically, strong labour market data would weigh on gold as it would be interpreted as having hawkish implications for Fed policy. But the Fed has gone to great lengths in recent weeks, including at its latest meeting, to acknowledge the tightness of the current US labour market, so Thursday’s data does little to surprise the bank or change this narrative. Instead, spot gold has been taking its cue on Thursday from falling real yields and rising inflation expectations.
The 5-year TIPS yields dropped under -1.63% in recent trade, its lowest level since 9 December and is down nearly 10bps on the day. That has not been accompanied by a fall in the nominal 5-year yield of equal magnitude, thus pushing 5-year break-even inflation expectations higher. 5-year breakevens moved above 2.90% on Thursday and look on course to test the early December highs at 2.92%.
It's not clear why the demand for inflation protection in the form of TIPS has surged this week . Traders and analysts have been warning against reading too much into any market moves this week, which are said to be exacerbated by low liquidity/volumes given many market participants are away for year-end holidays. Volumes and conviction are set to return next week and at the start of the new year, with plenty of US data to also give markets some direction/provide talking points.
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