Gold Price Forecast: XAU/USD remains depressed below $1.940 level, downside seems limited

Update: Gold witnessed some selling during the first half of the trading on Wednesday and eroded a part of the overnight strong gains. The XAU/USD remained on the defensive heading into the European session and was last seen hovering near the daily low, just above the $1,930 region. As investors assess the impact of aggressive sanctions against Russia over its invasion of Ukraine, a calmer risk tone was seen as a key factor that acted as a headwind for the safe-haven metal.

Apart from this, a goodish rebound in the US Treasury bond yields underpinned the US dollar, which, in turn, exerted additional downward pressure on the dollar-denominated gold. That said, the worsening situation in Ukraine should continue to lend some support to the XAU/USD, at least for the time being. In the latest developments, reports indicated that Russia has intensified the bombardment of Ukrainian cities and a large Russian convoy was approaching the capital Kyiv.

Moreover, diminishing odds for a 50 bps Fed rate hike in March should help limit any deeper losses for the non-yielding yellow metal. The recent geopolitical developments now seem to have convinced investors that the Fed would refrain from adopting a more aggressive policy stance to combat stubbornly high inflation. The fundamental backdrop remains in favour of bullish traders and warrants some caution before positioning for any meaningful slide for gold.

Previous update: Gold (XAU/USD) has witnessed a pullback after kissing Tuesday’s high at $1,950.30 towards $1,931.10. However, the precious metal has bounced back firmly amid a rebound in the risk-on impulse.

The premeditated invasion of Ukraine has caused death and destruction in Kyiv. The build-up of military troops in Ukraine has forced people to leave Ukraine to save their lives.

In order to retaliate against Putin’s army, Ukraine’s military and civilians are firmly defending their country, and sanctions from the Western leaders are delighting their resistance. Post facing the fierce resistance from Ukraine’s civilians, Putin ordered to target civilians too. Moreover, missiles were aimed at Ukraine’s second-largest city, Kharkiv.

The Russian military activities have escalated in Ukraine after the Ukraine-Belarusian border gets flooded with Belarusian tanks. Ukraine Defense intelligence said that there are 300 Belarussian tanks close by the border, as per The Jerusalem Post. This has advanced the fears of more destruction in Ukraine.

The sanctions from the Western leaders have absolutely isolated Russia from other nations in the world. The collapse of the SWIFT international banking system for the latter is alarming a financial crisis in its economy.

The escalation in geopolitical fears has improved the appeal for safe-haven assets again and eventually the demand for the precious metal. Moreover, the US dollar index (DXY) has attracted significant bids and marching towards reclaiming Thursday’s high at 97.72.

Gold Technical Analysis

On a 15-minute scale, XAU/USD has given a breakout of an ascending triangle on the upside, which was in a range of Monday’s low and Tuesday’s average traded price at $1,891.13 and 1,925.35 respectively. Usually, an ascending triangle breakout on the upside denotes an expansion in the size of ticks, depth of volumes, and eases volatility in the asset. The precious metal has since pullback towards the 50-period Exponential Moving Average, which is trading around $1,935. The Relative Strength Index (RSI) (14) has sensed support around 40.00, which indicates that the asset is not as bearish anymore.

Gold 15-minute chart