Gold Price Forecast: XAU/USD finds support on a weaker USD, high inflation negates downside risks – ANZ

The inverse correlation between gold and the US 10-year yield has broken down. A weaker US dollar is providing support, while higher inflation is negating downside risk of aggressive rate hikes, strategists at ANZ Bank report.

Gold ETF flows are recovering

“Rising geopolitical tensions are outweighing rising yields. Stronger than expected inflation is another key support, which is keeping the US dollar on a weaker footing and mitigating the chances of an aggressive rate hikes.”

“Investment demand is improving, with ETF holdings of gold up by 64t year-to-date. This follows a net liquidation of 300t in 2021. Investors are also adding fresh long positions in gold. Lean speculative positions leave room for a build-up of fresh longs and limited liquidation risk.”

“Physical gold demand in China was strong during the Lunar New Year holidays, as reflected in the gold spot premium. China imported nearly 818t of gold in 2021, and January imports are strong due to festive demand.”