Gold Price Forecast: XAU/USD’s downside appears capped at $1,971 amid Ukraine, inflation woes

Gold sellers seem to have limited control after Thursday’s impressive rebound.
Russia-Ukraine conflict to dominate sentiment amid resurfacing inflation concerns.
Gold price is trapped between 21 and 50-SMAs on the 4H chart, upside appears favored.

Dhwani Mehta FXStreet

Gold price has stalled the previous rebound on Friday, as investors digest the recent market-moving events. The European Central Bank (ECB) turned out to be relatively hawkish than expected while the US annualized inflation met estimates with 7.9% in February but at a 40-year high. The main focus point was on the peace talks between the Russian Foreign Minister Sergey Lavrov and his Ukrainian counterpart Dmytro Kuleba, which failed miserably amid a lack of progress on a ceasefire and Ukraine unwilling to give in to Russia’s demands. These event risks stoked massive risk-aversion across the financial market, triggering a fresh US dollar upswing alongside the Treasury yields.

Gold price, however, stood resilient and benefitted from resurfacing concerns over raging inflation, which provided a tailwind to the bright metal. Investors sought shelter in the ultimate hedge against inflation amid Ukraine crisis-led soaring energy prices. It remains to be seen if gold price can resume Thursday’s rebound, as the focus now turns towards the next week’s Fed meeting, with a 25-bps rate hike priced in by the market. In the meantime, the Russia-Ukraine headlines and the US Prelim UoM Consumer Sentiment data will offer fresh trading impetus to gold price. Markets will also look forward to US President Joe Biden’s national address, as he is likely to announce an end to Russia’s preferential trade status over its invasion of Ukraine.

Gold Price Chart - Technical outlook

Gold: Four-hour chart

On the four-hour chart, gold price is trading close to the lower boundary of a five-day-old symmetrical triangle formation.

Meanwhile, gold bulls continue to face stiff resistance at the horizontal 21-Simple Moving Average (SMA) at $2,007.

Until the gold price yields a four-hourly candlestick closing above the latter, bears are likely to retain control.

The Relative Strength Index (RSI) has pierced through the midline, allowing room for more declines.

However, a strong cap at $1,971 will likely limit gold’s decline, as the triangle support and the upward-sloping 50-SMA converge at that level.

A firm break below that crucial support will open up the further downside towards the $1,950 psychological level, below which the ascending 100-SMA at $1,937 could be probed.

Alternatively, immediate resistance is seen at $2,000, above which bulls need to crack the 21-SMA to take on the triangle hurdle at $2,021.

The $2,050 round level could emerge as the next relevant resistance on the renewed upside.

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.

AUD/USD holds above 0.6950 as bullish USD caps gains

AUD/USD edges lower during the Asian session on Tuesday, stalling a two-day recovery move from a two-month low, touched last week. An extended rout in the fixed income market keeps US bond yields elevated near multi-year highs. This, along with geopolitical uncertainties, helps the US Dollar retain its bullish tone despite receding October Fed hike bets. However, expectations for another RBA rate hike this month could act as a tailwind for the Aussie.

USD/JPY rises back above 158.00 despite hawkish BoJ outlook

USD/JPY rises back above 158.00 in the early European morning on Tuesday. The pair strengthens as the Japanese Yen fails to find any inspiration from hawkish BoJ expectations and looming intervention risks. Meanwhile, geopolitical uncertainty and elevated US bond yields keep the US Dollar near its YTD high despite receding October Fed hike bets. This, in turn, helps the pair stay supported.

Gold recovers further from two-month low amid some USD profit-taking

Gold builds on its modest intraday bounce from the $4,100 neighborhood, or a two-month low, and climbs above $4,150 during the first half of the European session. The US Dollar pauses for a breather following the recent strong rally from the September monthly swing low and offers some support to the precious metal. Adding to this, receding bets on an October Fed rate hike benefit the non-yielding bullion.

Ripple and Stellar weaken as derivatives positioning fades

Ripple (XRP) and Stellar (XLM) face pressure trading below $1.499 and $0.220, respectively, on Tuesday after a modest correction at the start of the week. Traders should be cautious as weakening derivatives metrics and fading bullish momentum suggest further corrections for XRP and XLM. Derivatives data shows a weakening and cautious signal among traders.

Europe in focus as French and Spanish politics drive sentiment

There are no tier-1 releases today. Focus will remain on developments in the European markets and geopolitical developments in the Middle East. In France, the key issue in the coming days will be whether the Socialists and Marine Le Pen's National Rally signal they are willing to topple the government over the budget.

Eurozone inflation just hit 3.8%, its highest in three years. This chart shows why the ECB can’t simply hike its way out

The ECB would normally have a relatively straightforward answer to inflation running almost twice its target: raise interest rates. But these are not normal circumstances. This time, the bond market is already doing part of the tightening for it, leaving the ECB facing an increasingly difficult dilemma.