FX.co ★ Gold has a trick up its sleeve

Gold is like a steadfast tin soldier - with dignity it withstands all the hardships that have fallen to its lot. In 2021, the precious metal lost about 4% of its value and closed in the red zone for the first time in three years, but you need to understand that the headwinds were so strong that XAUUSD quotes should have sunk much deeper. At the start of 2022, gold faced a leap forward in U.S. Treasury yields but still holds above $1,800 an ounce.

The change in the mindset of the Fed, which moved from patience to normalization of monetary policy, the abandonment of QE, and the intention to raise the federal funds rate – in such an unfavorable environment, the precious metal was forced to function last year. If we add to this the outflow of capital from ETFs focused on it to funds associated with bitcoin and other cryptocurrencies, the XAUUSD pair simply had to fly like a stone into the abyss.

Moreover, Invesco predicts that in 2022 the bitcoin mania will end and BTCUSD quotes will fall below 30,000, which will bring back buyers of gold ETFs. They say that the development of the situation with the leader of the cryptocurrency market is painfully reminiscent of the activities of stockbrokers on the eve of the collapse in the financial markets in 1929.

January 2022 has thrown another puzzle to precious metal fans. Despite the rise in the yield of 10-year U.S. Treasury bonds to the area of 2-year highs, expressed by the hawkish rhetoric of the FOMC members, the Fed's intention to raise rates in March and the return of interest in the dollar, gold remains stable.

U.S. bond yield dynamics

Some banks and investment companies are nodding at the high inflation and uncertainty surrounding Omicron. In fact, the latest strain of COVID-19 doesn't scare investors as much as Delta. High levels of inflation are indeed holding back real yields on U.S. Treasury bonds and putting obstacles in the way of the U.S. currency. However, the latest forecasts by Wall Street Journal experts suggest that by the middle of this year, consumer prices will slow down from 7% to 5%, and at the end of 2022 their growth rates will drop to 3.1%.

At the same time, economists surveyed by Bloomberg predict that the yield on 10-year U.S. Treasury bonds will rise to 2.13% by the end of December. Judging by the way it started the year, it can be assumed that the final value will be higher. As a result, real debt rates will continue to rise, putting downward pressure on the precious metal.

Thus, the XAUUSD bulls have their own trump cards in the form of an overflow of capital from the cryptocurrency market into gold ETFs, uncertainty around Omicron, and high inflation. At the same time, the Fed's aggressive monetary restriction and a rally in U.S. bond yields may cancel out all the positives.

Technically, gold has not yet decided on the direction of further movement and continues to trade in consolidation. At the same time, a break of resistance at $1,825 could push the precious metal quotes higher. On the contrary, a drop below the support at $1,805 an ounce is a reason to sell it in the direction of at least $1,790 and $1,775.

Gold, Daily chart