Gold Price Forecast: XAU/USD remains a ‘buy the dip’ trade, diplomacy talks eyed

Gold price is receding in tandem with the risk-off flows on the final trading day of the week, having clocked a fresh eight-month high at $1,903, earlier on. The pullback in the yellow metal could be associated with a minor boost in the market mood, thanks to the easing fears of an imminent Russian invasion of Ukraine. Traders breathed a sigh of relief ahead of the two upcoming meetings, scheduled to hold diplomatic talks. On Friday, US President Joe Biden is scheduled to host a meeting with international leaders while late-next week State of Secretary Antony Blinken has accepted an invitation to meet Russian Foreign Minister Sergey Lavrov. Hopes for diplomacy in Ukraine will remain the theme in the day ahead unless some warring headlines once again hit the markets and disrupt the stabilizing risk sentiment.

The correction in gold price, however, could be seen as a ‘buy the dip’ trade, as investors continue to remain cautious heading into the week amid lingering geopolitical tensions. Another factor that could keep gold buyers hopeful is the dialing back of bets on a supersized March Fed rate hike. Swap traders now price in a 25-basis points (bps) Fed rate hike next month while suggesting a 50-bps lift-off appears unlikely. Looking ahead, headlines surrounding the Russia-Ukraine crisis will continue to dominate the market sentiment alongside the Fedspeak.

On Wednesday, gold price surged $26 and finally stormed through the $1,900 barrier, although failed to close above the latter. US’ ramping up of the warnings on a potential Ukrainian invasion by Russia boosted safe-haven flows into the bright metal. Mortars and grenades firing by Ukraine’s military and rebels in the conflicted Donbas region of East Ukraine triggered a massive risk-aversion wave a day before, which smashed the global stocks alongside the Treasuries, as investors scurried for safety in the US government bonds and gold.

Gold Price Chart - Technical outlook

Gold: Daily chart

Gold price is off the multi-month high level but remains in its close proximity, with a buying resurgence likely to retest the same. Gold bulls will then look out for the June 1 high of $1,917. The next bullish target is envisioned at $1,950, the psychological barrier.

The 14-day Relative Strength Index (RSI) has inched slightly low but holds comfortably above 50.00, keeping the bullish bias intact. Adding credence to a potential move higher, the 100-Daily Moving Average (DMA) is on the verge of crossing the 200-DMA for the upside, which if materializes, will confirm a bull cross.

Alternatively, if the retracement picks up pace, then the round level of $1,890 will be put to test initially. The additional declines will call for a test of Tuesday’s high of $1,880, below which the $1,850 support area will be back on sellers’ radars.