Gold Price Forecast: XAU/USD pullback could call for fresh upswing, geopolitics to dominate

Gold price correction to pave the way for another leg higher through June 2021 highs.
Biden-Putin summit calms nerves but invasion, sanction risks remain on the table.
Bull cross on the daily chart awaited, as gold price has more room to rise.

Dhwani Mehta FXStreet

After witnessing a stellar performance all through the previous week amid geopolitical tensions, gold price ended Friday in the red, mainly driven by profit-taking. Also, hopes for diplomacy talks this week, with eyes on a planned meeting between the US Secretary of State Antony Blinken Russian Foreign Minister Sergey Lavrov, lifted the overall market mood, dulling gold’s safe-haven appeal. The proposed diplomatic talks between the US and Russia eased fears of an imminent Russian invasion of Ukraine, especially after the news of shellings and firing were reported earlier last week in war-torn East Ukraine. Gold price peaked at $1,903, fresh eight-month highs, before reversing sharply to near $1,885 levels. However, investors still remained somewhat cautious amid looming Russian risks, as Wall Street indices tumbled, which helped the bright metal recover some ground at the weekly close.

Gold price has witnessed good two-way trading around the $1,900 mark at the start of a new week on Monday. Despite a fresh week, nothing changes in terms of the geopolitical risks, as the US continues to warn of a potential Russian incursion on the Ukrainian border. French leaders had calls with their US, Russian and Ukrainian counterparts over the weekend, urging them to hold diplomatic talks and de-escalate the war-like situation. Markets are seeing a bit of a bull-bear tug-of-war in the metal, at the moment, with bulls giving into the bearish pressures after the White House confirmed that US President Joe Biden accepted to hold a summit with his Russian counterpart Vladimir Putin so long as there is no invasion. Gold price corrected sharply on the encouraging news, falling to as low as $1,891. But the drop was partly reversed, as Reuters reported that the US has prepared an initial package of sanctions that would bar the US banks from processing transactions with big Russian banks, citing some sources.

In the day ahead, gold traders will remain vigilant on the incoming Russia-Ukraine geopolitical updates, as thin trading conditions will likely persist due to President’s Day holiday in the US. Investors will keep themselves entertained by the Euro area preliminary PMI reports and Fed official Bowman’s speech, although the Ukraine tensions will lead the way.

Gold Price Chart - Technical outlook

Gold: Daily chart

Technically, nothing much has changed for the bright metal, with the June 2021 highs of $1,917 still on buyers’ sight, as they await a bull cross confirmation on a daily closing basis.

The 100-Daily Moving Average (DMA) is testing the 200-DMA, looking to cut above it for the upside, which will flash a bullish signal and offer the much-needed impetus to gold bulls.

ON buying resurgence, the eight-month highs will get retested, above which the June 2021 highs will be in focus. The next bullish target is aligned at $1,950, the psychological barrier.

The 14-day Relative Strength Index (RSI) is sitting just beneath the overbought territory, suggesting that there is more room to rise for the bullion.

Alternatively, if the retracement picks up pace, then the round level of $1,890 will be threatened once again, below which floors will open up towards Tuesday’s high of $1,880.

A fresh downswing will be triggered below the latter, as the $1,850 support area will be back on sellers’ radars.

Author

Dhwani Mehta

FXStreet

Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.

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