GOLD, XAU/USD, US Dollar, Real Yield, AUD/USD, Crude Oil – Talking Points

• Gold continues to glisten ahead of crucial inflation data
• The Fed continues to talk tough on rates, but equities rally anyway
• China’s re-opening has underpinned base metals, Will it boost XAU/USD?

Gold made an eight-month high overnight despite the US Dollar gaining against most currencies.

The US 10-year real yield dipped under 1.35% today as it continues to slide from the late December peak above 1.6%.

The real yield is the nominal Treasury note yield less the breakeven inflation rate for the same tenor. As gold does not possess an interest rate of return, changes in the real yield of alternative investments may play a role in sentiment toward its value.

The precious metal may have also been lifted by industrial metals that have rallied on hopes that China’s post-pandemic re-opening will ignite construction and industrial production there.

Iron ore, aluminium, copper and nickel have all notched solid gains since China abandoned its zero-case Covid-19 policy.

Treasuries added 3 to 10 basis points across the curve in the US session with the larger gains seen in the back end of the curve. They have slipped slightly so far today.

The US Dollar is holding onto recent gains, but currencies have generally had a quiet Asian session.

The stock market seems to be optimistic about the possibility of a soft US CPI on Thursday. It appears to be ignoring what the Fed is saying about rates needing to be higher than what is currently priced and that they will need to stay there for a long time.

Federal Reserve Governor Michelle Bowman reiterated this sentiment in a speech in Florida.

The world bank is less upbeat than they were previously. They halved their growth forecast for 2023 to 1.7% from 3.4% yesterday.

Nonetheless, Wall Street finished the cash session and this fed into a positive day for all the major APAC bourses.

Australian retail sales were released today and came in at 1.4% month-on-month for November, notably above the 0.6% forecast and -0.2% previously.

The year-on-year figure to the end of November was 7.4% rather than the 7.2% anticipated and 6.9% prior. AUD/USD blipped up but soon retraced.

Crude oil declined with the WTI futures contract near US$ 74.50 bbl and the Brent contract a touch under US$ 79.50 bbl.

There will be a number of ECB speakers today and the US will see some mortgage data.

The full economic calendar can be viewed here.

GOLD AND US 10-YEAR REAL RATE CHART

Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

Please contact Daniel via @DanMcCathyFX on Twitter