Gold has been hot and cold as of late. After rallying to $340 an ounce since early November, the precious metal lost more than $100 of its value in February. The last month of the winter was its worst since June 2021. The XAUUSD sell-off was based on the strengthening U.S. dollar and the return of 10-year U.S. Treasury bond yields to the 4% mark. Judging by Bank of America's forecasts of a 6% increase in the federal funds rate and Nordea Markets' forecasts of a 4.5% increase in the 10-year Treasury yield, gold's rebound at the turn of the winter and spring is limited.

The precious metal entered 2023 in good spirits. Fears over an imminent recession and the growing popularity of disinflation were promising for the bulls on the XAUUSD. However, the October–January rally did not result in an inflow of capital to the ETFs, while the February sell-off forced investors to take money from them.

Standard Chartered notes that by the end of the last month of winter, the outflow will amount to 20 tonnes, with 11 tonnes lost by specialized exchange-traded funds during the last four sessions. Not surprisingly, rising U.S. Treasury yields increase the opportunity cost of holding gold and force holders to get rid of it.

At the same time, optimism prevails among the 30 experts participating in the LBMA survey. They forecast an average price of $1,860 an ounce for the precious metal in 2023, and the most ardent bulls see it at $2,025. Respondents believe the future dynamics of XAUUSD is based on three factors—the outlook for the dollar and inflation, as well as geopolitics. Currently, the dominant narrative in the market is "higher rates and a longer period of holding them at their peak." However, keep in mind that monetary tightening affects the economy with a time lag. The most aggressive increase in the federal funds rate in 10 years has not been fully accounted for, and if the Fed continues along these lines, it runs the risk of breaking something.

Dynamics of gold and U.S. dollar

The deterioration of U.S. macro statistics will bring back the topic of recession and the Fed's dovish turn to the market, which will lower Treasury yields, weaken the U.S. dollar and create a tailwind for XAUUSD. Nevertheless, weak data on consumer confidence and the purchasing managers' index from the Chicago Fed are unlikely to become a reliable source of weakness in the U.S. economy. Without statistics on the labor market and inflation, it is too early to talk about this.

In this regard, the gold rally at the turn of winter and spring looks like a false start. The precious metal is clearly getting ahead of itself and can be punished for it.

Technically, on the daily chart of gold, there was a rebound from the level of $1,807 per ounce mentioned in the previous article, which allowed us to form the longs. A failed resistance test at $1,835, $1,850 and $1,865 will allow us to take the profits and reverse. The recovery of the upward trend requires the growth of the precious metal above $1,880 per ounce.