Unsinkable. This is how gold can be characterized, which withstood both the rise in global debt rates after the ECB meeting and the strengthening of the U.S. dollar in response to unexpectedly strong statistics on U.S. employment in January. It is generally accepted that rising bond yields and the USD index create a headwind for the precious metal. The latter does not generate interest income, so it is not able to compete with debt obligations. In addition, gold is quoted in U.S. currency, and therefore the strengthening of the dollar, as a rule, leads to a fall in XAUUSD quotes. In early January, serious doubts arose about the stability of intermarket relations.

The rise in U.S. Treasury yields to the highest levels since the fall of 2019 and the decline in the global debt market, which trades at negative rates, to $6 trillion, which is the lowest since the summer of 2018, it would seem, should have put an end to all bull attacks for XAUUSD. The strong U.S. jobs report only reinforced the view that the Fed will raise rates 5 times in 2022, and the likelihood of a 50 basis point increase in borrowing costs at once in March increased from 1:7 to 1:3. As a result, bond yields went up, and the U.S. dollar strengthened, but the precious metal, after falling below $1,800, quickly regained lost ground.

Dynamics of the volume of the global debt market with negative rates

Estimated dynamics of the federal funds rate

Thus, the gold rally looks like a paradox, but in fact, you just need to dig deeper. In order to correctly predict the future, it is necessary to thoroughly understand the past. 2021 was the worst for the precious metal in several years. A combination of factors led to its subsidence by almost 4%: a strong U.S. dollar, the belief of the markets that inflation is a temporary phenomenon, and finally, the flight of money to stock indices and bitcoin. In conditions of low volatility and colossal incentives, they grew by leaps and bounds. A lot will change in 2022. If not everything.

The dollar no longer looks like a king on Forex, since five acts of monetary restriction in 2022 are taken into account in the quotes of the currency pairs associated with it. I doubt very much that the S&P 500 is capable of soaring nearly 30% as it did last year. This requires new packages of fiscal and monetary support, which are out of the question. Yes, corporate reporting for the fourth quarter is pleasing to the eye, but what will happen in the first?

In addition, the tightening of the Fed's monetary policy will add volatility to the stock market and take liquidity away from the cryptocurrency market. Investors' eyes will turn to safe-haven assets, and the XAUSD bulls will only benefit from this.

If we add to the above the return of the world economy to an inflationary regime a la the 1970s, it becomes clear that buying precious metals is not such a bad idea.

Technically, the return of gold above fair value and moving averages indicate the seriousness of buyers. A break of resistance at $1,835/oz could be a catalyst for a rally towards $1,850-$1,855 and $1,880-$1,885 and grounds for longs to form.

Gold, Daily chart