Gold Price Analysis: XAU/USD spikes towards $1960 in choppy, post-US open trade only to reverse just as quick

Spot gold (XAU/USD) prices have traded in exceedingly choppy and unpredictable fashion over the course of the last half an hour or so, initially surging to fresh weekly highs just under $1960 but then pulling back sharply into the $1940s again. With the prior weekly highs at $1950 now cleared, the bulls will likely be eyeing a test of last week’s highs in the $1974 area. Technicians noted that gold, prior to recent volatility, had over the last few days formed an ascending triangle, the ceiling for which was in the $1950 area. Ascending triangles are often a precursor for a bullish breakout, which might to some extent explain the recent surge and pick-up in volatility.

More broadly though,  trade has been volatile since the US open, with major equity indices there opening deeply in the red, a reflection of the broader risk-off tone to Friday trade as investors fret about the ongoing and intensifying war in Ukraine. Markets were spooked during Asia Pacific hours on Friday at the news of fight around and a fire in a major Ukrainian nuclear plant and, while the fire has reportedly been put out and the plant captured by Russian forces, markets remain jittery. All of this is underpinning gold prices and keeping prices trading with an upside bias.

Add to the mix a continued surge in global energy (oil and gas) prices, as well as sharp upside in various agricultural and base metal products exported by Russia, and the demand for inflation protection also remains strong. Other factors/market conditions are also working in favour of gold; firstly, US bond yields are sharply down on Friday amid a safe-haven bid. That lowers to the opportunity cost of holding non-yielding safe-haven assets like gold and is shieling gold from the typically negative impact of the stronger US dollar.

Meanwhile, the latest US labour market report for February, though showing stronger than expected job gains on the month and a larger than forecast drop in the Unemployment Rate, showed an easing of wage cost pressures. Rising wage growth has been one of the factors concerning the Fed in recent months, so the latest metrics have been interpreted as easing pressure on the bank to tighten policy as quickly this year, arguably a positive for gold. It is notable, however, that Fed policymaker Charles Evans recently played down reading into the latest jobs report too much, saying it didn’t change much heading into this month’s Fed meeting.