Gold Price Analysis: XAU/USD recovers back above $1840 on safe-have demand after bulls buy dip

Spot gold (XAU/USD) prices have in recent trade recovered back to the north of the $1840 level after falling back below, but finding excellent dip-buying interest at, the $1830 level early in the European trading session. At current levels around $1842, spot prices are back to trading modestly in the green again and remain close to the two-month highs at $1847 reached on Thursday. Broad market risk appetite is one of risk-off this Friday, with global equities and other risk assets lower and developed market bond yields also lower across the board.

The combination of lower bond yields (reducing the opportunity cost of holding non-yielding gold) and demand for safe-haven assets has underpinned gold prices and was likely a key reason why traders were so eager to buy the dip to $1830. Recall that the $1830 area had previously been a strong zone of resistance in recent weeks as Fed rate hike bets kept gold prices capped. Since the short-squeeze that sent XAU/USD shooting into the $1840s on Wednesday, this area of prior resistance has now turned to support.

Gold looks set to close out the week about 1.3% higher and two major factors that have been cited as supportive for the safe-haven metal include 1) geopolitical tensions and 2) easing from China’s central bank. Regarding the former, market participants are worried about the global economic ramifications of a potential Russian invasion into Ukraine, which some fear could prove inflationary (boosting demand for inflation hedges such as gold).

Meanwhile, the PBoC cuts interest rates across its Medium-Term Lending Facility, one and five-year Loan Prime Rates and Lending Facility Rate this week as it looks to shore up slowing Chinese economic growth. Easier monetary policy is typically positive for gold. However, gold bulls will be aware that the ability of these two themes to provide ongoing support for gold next week, when the market focus will be on what is likely to be a very hawkish Fed meeting, is questionable.