• Gold traded with upside on Monday as the US dollar continued to fade despite holiday-thinned trading conditions.
• XAU/USD was last changing hands near $1860 and eyeing recent highs having found decent support at its 21 and 200DMAs.
• Should market participants continue to pare Fed tightening bets, gold could reclaim $1900, even if risk appetite also rebounds.

Spot gold (XAU/USD) prices are trading with an upside bias in quiet, US holiday-thinned trade and eyeing a test of last week’s highs around $1870 per troy ounce. At current levels around $1860, XAU/USD is about 0.4% higher, having found support earlier in the session at the 21-Day Moving Average (at $1849.25) and amid continued technical buying after spot prices found solid support at the 200DMA (at $1840) last week.

Gold’s advances on Monday come despite a positive tone to global macro trade and are being driven by a continued weakening to fresh monthly lows in the US dollar. In wake of US Consumer Price Inflation data released earlier in the month and Core PCE inflation data released last week, market participants have become less worried about inflation in the US and, as a result, Fed tightening bets have seen a modest pullback (i.e. for H2 2022 and 2023).

US bond markets are closed on Monday, but price action in gold and USD markets suggests that yields will probably open the week lower, a continuation of the weakening trend that has, in tandem with the recent weakening of the US dollar, boosted XAU/USD by over 4.0% from sub-$1790 mid-month lows. US data will be in focus this week with various tier one releases including the May ISM Manufacturing PMI survey and official May labour market report all out later in the week.

Analysts argued that should the trends of easing US inflation fears, easing Fed tightening bets and subsequently, more downside in US yields and the buck continue, that could be a bullish medium-term driver for gold, even if it also boosts risk appetite (i.e. US equities). With XAU/USD having found such strong support at its 21 and 200DMAs, the outlook for further upside towards the 50DMA near $1900 looks good.