Gold Price Forecast: Bulls keep the $1,930's on the radar on Ukraine risk

Update: The gold price has risen sharply in Asia as safe-haven currencies and precious metals were in demand after Russian President Vladimir Putin put nuclear-armed forces on high alert on Sunday. Additionally, there are concerns for the banking system as sanctions on Russia will include removing them from SWIFT.

The escalating crisis in Ukraine is making for a geopolitical risk premium for gold. Meanwhile, Russia’s invasion of Ukraine is also likely to add to global food price inflation, which brings the focus to the Federal Reserve. The market is currently putting a 20% probability on a 50bps rate hike in March but the odds have been falling over the past week considering the Ukraine crisis. Nevertheless, the US dollar is under demand for its safe-haven properties and dollar swap lines will likely be a theme over the comings days. 

Gold is holding near last week's lows in the open as markets weigh up the weekend headlines surrounding the Ukraine-Russia crisis. On the one hand, Russia's President, Vladimir Putin, put nuclear forces on high alert over the weekend, escalating tensions, but on the other hand, there are reports of a peace talk in the offing. Consequently, financial markets are mixed at the open with large gaps in forex being filled.

Western powers' moves to cut some Russian banks from the SWIFT global payments system and freeze the Bank of Russia's reserves have antagonised the Russian president. Putin said he was giving the nuclear readiness order because “top officials in NATO’s leading countries have been making aggressive statements against our country,” according to a report from Russian state news operator TASS.

Meanwhile, Ukrainian President Volodymyr Zelensky confirmed to Sky News that the two sides would hold the talks on the border of Ukraine and Belarus, where some of the Russian troops invading his country had been held.

Zelensky had refused to agree to an earlier request for talks in Belarus, arguing it was not neutral territory.  Sky News, referring to a statement from Zelensky's office, said the two delegations will meet "without preconditions" near the Pripyat River.

The Russia risk premium has overwhelmingly contributed to the rise in gold prices from the start of February, analysts at TD Securities explained. ''The Russia risk premium has catalyzed a breakout from the wedge pattern, bringing in some chartist demand, and sparking a substantial CTA buying program which is supporting prices today. This rolling series of events have culminated in the strong price action.''

Looking forward, however, the analysts argued that the crushing weight of a hawkish Fed will ultimately sap appetite for precious metals, which should argue for lower prices as safe-haven flows reverse. ''Without sustained buying behaviour, gold prices are unlikely to remain in an uptrend, particularly as real rates rise sharply amid dual tightening via hikes and quantitative tightening.''

However, rising tensions in Ukraine have recently fueled expectations that the Fed may be less aggressive in tightening policy as it attempts to rein in inflation. Expectations for at least a 50-basis-point interest rate hike at its March meeting have fallen to 25% from around 34% a day ago, according to CME's Fedwatch.

In this regard, the data at the end of the week will be important. The US Nonfarm Payrolls report likely continued to recover in February following an unexpectedly strong Jan report—despite the Omicron-led surge in COVID cases, analysts at TD securities aid.

''We expect some of that boost to fizzle, though to still firm job growth pace. Seasonal adjustments were a factor last month and they will likely play a role again in Feb. We expect wage growth to slow to a still strong 0.5% m/m pace.''

Gold technical analysis

The price is testing a key daily support area that guards risk to below $1,844, However, should the bulls commit at this juncture, an upside continuation would be expected for the near future.