Gold Price Analysis: XAU/USD rises to fresh weeky highs in $1940s despite strong USD, rising yields

• Despite the stronger dollar and higher US yields, gold pushed to fresh weekly highs in the $1940s in recent trade.
• In doing so, it broke above its 21DMA, and is now eyeing a test of late March highs in the $1960s.
• Demand for inflation protection is seemingly underpinning the precious metal, with US inflation data next week in focus.

Despite a continued push higher in the US dollar that on Friday saw the DXY hit 100 for the first time since May 2020, and a continued push higher in US yields across the curve, with the 10-year hitting 2.70% for the first time since March 2019, spot gold (XAU/USD) remains in demand. Even though a stronger dollar makes it more expensive for the holders of international currencies and higher yields increase its “opportunity cost” as a non-yielding asset, XAU/USD recently pushed to the north of its 21-Day Moving Average in the $1930s to advance to fresh weekly highs in the mid-$1940s.

XAU/USD bulls are eyeing a break above last week’s highs just under $1950, which could open the door to a push towards late March highs in the $1960s. Seemingly, gold is being supported at present in the face of unfavourable financial conditions (i.e. strong USD and higher yields) amid continued strong demand for 1) safe havens amid ongoing geopolitical worries and 2) inflation protection.

Indeed, gold traders will be closely eyeing the release of US Consumer and Producer Price Inflation metrics for March next Tuesday and Wednesday, which are likely to show a large MoM jump due to the impact of the Russo-Ukraine war. If even larger than expected, this could trigger fresh demand for inflation protection and launch XAU/USD towards the $1960s.

But a higher-than-expected inflation print will exert further pressure on the Fed to be even more hawkish than it already is. A difficulty that traders are going to have in the coming quarters is to judge the relative impact of Fed tightening (bearish for gold) against demand for inflation protection (bullish for gold).