Gold Price Analysis: XAU/USD pushes higher despite Powell hawkishness

• Spot gold has advanced on Monday despite the US dollar and yields rising in wake of hawkish Powell commentary.
• XAU/USD is in the $1940 area and eyeing recent highs around $1950 as inflation and geopolitical concerns linger.

Spot gold (XAU/USD) has mostly been trading on the front-foot during US trading hours, despite the latest remarks from Fed Chair Jerome Powell, which struck market participants as far more hawkish than expected and boosted the US dollar/yields. Gold has rallied from early session sub-$1920 per troy ounce lows to current levels in the $1940 region, where it trades about 1.0% higher on the day. Last Thursday and Friday’s higher in the $1950 area are for now capping the price action.

Powell said that the Fed needs to move expeditiously to get interest rates back to neutral, warning that could mean rate hikes of greater than 25bps intervals and said that the Fed might need to take rates above neutral. Some analysts said his remarks were nothing more than a reiteration of his post-Fed policy announcement remarks from last week, but markets responded by further upping the implied probability of a 50bps move in May to above 60% (from around 50% prior to his commentary).

The subsequent move higher in the US dollar (DXY +0.25%) and US bond yields (2s +17bps, 10s +15bps) would typically weigh on gold demand by making it more expensive for the holders of non-US dollar currency and via a higher “opportunity cost” of holding non-yielding assets. But risk-off market conditions (US equities are a little lower across the board) seem to be spurring some safe-haven demand, while a sharp upside in crude oil markets is keeping inflation fears alive and thus spurring some safe-haven demand. Oil prices have flown around $8.0 higher (in WTI) on the session as momentum towards an EU-wide embargo on Russian oil exports build.

Another bullish factor for gold is the fact that Russo-Ukraine peace talks appear to have largely stagnated, with no progress seen over the weekend, all while the brutality of the Russian assault on various Ukrainian cities rises. Hence, the momentum towards ever-stricter sanctions against the Russian economy remains strong. The calculation right now for gold appears to be that there is still plenty enough reason to continue adding to longs on any pullback to the $1900 area.