XAU/EUR reverses back from 14-month highs as hawkish Fed commentary weighs on gold

• XAU/EUR is back to flat in the EUR 1630 region having hit 14-month highs earlier in the session. 
• Gold has been broadly weighed in recent trade amid hawkish vibes from Fed policymakers.

Euro-denominated spot gold (XAU/EUR) printed fresh 14-month highs on Friday at EUR 1653, but has since pulled back to the EUR 1630 area. On the day, prices are now flat versus more being up more than 1.0% when at highs. However, on the month, euro-denominated gold’s price gains still stand at close to 6.0%.

The pair was boosted early during Friday’s European session amid a ramp-up in Covid-19 fears on the continent after Austria announced a lockdown to start on Monday and German officials refused to rule out that they could follow suit. The euro weakened broadly as a result and is still the underperforming G10 currency on the day.

But gold prices have broadly weakened over the last few hours amid what has turned out to be quite a sharp pick up in short-end US real and nominal yields. The yield on the US 5-year TIPS bond is up 8bps on Friday, while in recent trade the nominal 2Y yield has eroded earlier losses of as much as 5bps to trade flat on the day around 0.50%.

The move higher in yields that has weighed on gold followed a succession of hawkish Fed commentary. Governor Christopher Waller called for an accelerated QE taper and said that rate increases could be appropriate as soon as Q2 2022. Shortly thereafter, influential Vice Chairman of the FOMC Richard Clarida said that it could be appropriate to discuss an accelerated QE taper in December. Plenty more FOMC members will hit the wires next week market participants will be eager to assess the appetite on the Committee for an accelerated QE taper and earlier rate hikes.