Gold Price Forecast: XAU/USD corrects after struggling to find acceptance above $2,000 mark

Gold added to last week's strong gains of over 4% and kicked off the new week on a positive note amid the global flight to safety. In a further escalation of the Russia-Ukraine war, Russian jets continued to drop bombs near the Ukrainian capital Kyiv. Moreover, Russian President Vladimir Putin warned that the war in Ukraine would continue. This, in turn, triggered a fresh leg down in the equity markets and boosted demand for traditional safe-haven assets, including the XAU/USD. The momentum pushed spot prices to the highest level since August 2020, though bulls struggled to capitalize on the move or find acceptance above the key $2,000 psychological mark.

The risk sentiment stabilized after Russia announced that it will hold fire and open six humanitarian corridors to allow civilians to escape. This, along with an extension of last week's blowout US dollar rally, acted as a headwind for the dollar-denominated gold. The worsening situation in Ukraine has led to the recent monster gains in commodity prices and stoked fears of a major inflationary shock for the global economy. This benefited the greenback's status as the reserve currency and pushed it to levels not seen since May 2020. Apart from this, news that the third round of Russia-Ukraine ceasefire talks is set to start at 14:00 GMT forced the XAU/USD to pare its intraday gains.

That said, a Kremlin spokesman told Reuters that Russia will finish the demilitarization of Ukraine. The spokesman added that Ukraine must amend the constitution and reject claims to enter any bloc, must recognise Crimea as Russian, and Donetsk and Lugansk as independent states. If these conditions are met, then Russian military action will stop in a moment. This might keep a lid on any optimistic move in the markets and continue lending some support to gold prices. Hence, any corrective slide could be seen as a buying opportunity and remain limited. Nevertheless, the fundamental backdrop seems tilted in favour of bullish traders and supports prospects for additional gains.

Technical outlook

From a technical perspective, overbought RSI (14) on daily/weekly charts seemed to be the only factor that held back bullish traders from placing fresh bets. Hence, it will be prudent to wait for some near-term consolidation or modest pullback before positioning for the next leg up. In the meantime, the $2,000 round-figure mark might continue to act as immediate resistance. Sustained strength beyond should pave the way for a move towards retesting 2020 swing high, around the $2,075 region.

On the flip side, weakness below the $1,871-$1,870 area is likely to be short-lived and find decent support near the $1,850 region. The latter should act as a strong base for spot prices, which if broken decisively might prompt some long-unwinding trade. Gold could then slide to the $1,927-$1,925 region en-route the next relevant support near the $1,910 area and the $1,900 round-figure mark.

Gold 4-hour chart

Technical levels to watch