XAUUSD dropped as Yields Adjusted to Inflation Expectations

The XAUUSD dropped markedly yesterday as yields adjusted on the initial jobless claims and ADP beats. This is an interesting and potentially telling reaction. The yield adjustment likely came as inflation expectations were altered by the market. We also refer to the USDOLLAR which appreciated as the US10Y adjusted. It is often said the XAUUSD is a hedge against inflation but yesterday’s move was contrary to this. Therefore, as and when nominal yields make further adjustments we consider it prudent to look at the XAUUSD response relative to the USDOLLAR reaction to help with the analysis of direction.