Gold Price Analysis: XAU/USD underpinned and trading near 200DMA at $1806 as ADP data eyed

• XAU/USD is consolidating near its 200DMA at $1806 ahead of the release of ADP’s estimate of US January employment change.
• Gold remains decently underpinned as USD continues to decline due to repositioning and a paring back of Fed tightening bets.

As the sharp US dollar downturn continues for a third successive session and with the DXY having shed another 0.5% on the day to drop back below the 96.00 level, spot gold (XAU/USD) prices are trading in the green. Note that a cheaper US dollar makes USD-denominated gold cheaper for purchase by holders of international currencies, thus boosting its demand. Market commentators are citing a combination of 1) a paring back of long positions and 2) a paring back on hawkish Fed bets following recent policymaker communications as the major driver of recent US dollar weakness.

Regarding positioning; MUFG noted on Wednesday that their 2yr z-score measure of Leveraged Funds’ long USD positioning is “at an extreme”, with USD longs at a level not seen since 2011. However, ING says that “if position-squaring is indeed behind this week’s dollar weakness… we expect the dollar’s positioning now to have reached a somewhat more balanced level which can allow for some stabilisation,” the bank says. “After all”, they continue, “a market that is quite freely speculating on the pace and size of Fed tightening is unlikely to turn much less bullish on the dollar anytime soon”.

Regarding recent Fed speak, policymakers played down the prospect of a 50bps rate hike in March. Meanwhile, though policymakers speaking this week have unanimously expressed support for the start of a rate hiking cycle next month, most emphasised a data-dependent approach when it comes to determining its timing, pace and extent. Not only has such rhetoric helped take the wind out of the US dollar, but it has also helped keep a lid on US bond yields, another positive for spot gold.

Ahead of the release of payroll company ADP’s estimate of US employment change in January at 1315GMT, spot gold prices have nudged back above the $1800 level. Analysts have said that due to the data’s poor predictive power of the official NFP number (which is released on Friday) plus the fact that Friday’s number is expected to be pretty poor and larger ignored anyway, markets won’t react much to the ADP release. For now, the XAU/USD price action remains capped by the 200-day moving average at just under $1806, with prices having failed to get above this level on Tuesday. Otherwise, its expected to be a quiet session with no major other US data releases or scheduled Fed speakers.