Gold Price Forecast: XAU/USD looks to settle below $1,900 as it loses safe haven appeal

Update: Gold prices are eyeing support below $1,900 amid a rebound in the risk-off impulse in the market. The precious metal has been oscillating in a range of $1,890.92-1,911.00 as investors await fresh trigger from the Russia-Ukraine war.

However, the Russian invasion of Ukraine seems to escalate further. The Maxar satellite images have shown that the Russian military surrounded the north of Kyiv is stretched longer to 40 miles approximately than 17 miles, initially reported. This may bring back some action in the yellow metal.

Moreover, the US dollar index (DXY) has been vulnerable, as the market participants have channelized their funds from the DXY to risk-sensitive assets. The greenback has established a short-term ground near 96.80, which has also trimmed the exposure of the precious metal against the greenback.

The US docket will report Manufacturing Purchasing Managers Index (PMI) data by the Institute for Supply Management (ISM) on Tuesday, which will remain under the radar. However, Wednesday’s testimony from the Federal Reserve (Fed) Chair Jerome Powell will be the key event to watch out for alongside another round of peace talks between Russia and Ukraine ‘in the coming days.’

The Gold price has rallied as demand for safe-haven assets remained strong. Spot gold rose 0.6% to $1,898.25 per ounce, after gaining as much as 2.2% earlier in the session. US gold futures settled up 0.7% at $1,900.70.  Gold, often used as a safe store of value during times of political and financial uncertainty, has risen about 6.5% in February, having soared to an 18-month high of $1,973.96 last week.

Russia's ongoing attack on Ukraine weighed on risk and US and European equities as well as bond yields. Investors are wrestling with uncertainty and bank stocks dropping following powerful Western sanctions against Russia as it continued its invasion of Ukraine. The DJI and S&P 500 fell, but the Nasdaq managed to claw its way to a gain.

US bond yields fell and the curve steepened as the events unfolding in Ukraine continues to dominate global risk sentiment. The 2-year government bond yields dropped from 1.57% to 1.43%, and 10-year government bond yields fell from 1.95% to 1.85%.

Buying of physical gold expected to rise

Buying of physical gold is also expected to rise. The Russian central banks said it would resume its gold purchases after a two-year pause. 

''Russia holds nearly 2300 tonnes of gold worth nearly USD140billion in their FX reserves, representing 22% of FX reserves as of their latest filings from November 2021,'' analysts at TD Securities explained.

''While that estimate is defined as gold in vaults, en route, in allocated and unallocated accounts including those that are held abroad, the Bank of Russia's annual report suggests that precious metals are stored in the territory of the Russian Federation. In turn, this gold could theoretically be used to skirt SWIFT sanctions, but it's not clear how immediately effective this route will be.''

''After all, these sanctions will eliminate location swaps, which will restrict trading with most counterparties. The gold would therefore have to be physically shipped to a destination that would be willing to purchase it, suggesting some form of discount to the war-chest, which blurs the implications for global gold prices.''

A gold top could be in the offing

The analysts, however, expect that a top could be in the offing.

''The evidence continues to support our view that CTA trend followers may have bought the top in gold. With the event risk now largely behind us, barring a significant escalation, safe-haven flows might show signs of easing.''

''Whether a sustainable bid can appear will depend on the implications of this conflict for the Fed's decision-making. After all, the event is globally stagflationary, but implications for US growth are milder outside the inflation channel, which augments the uncertainty surrounding the Fed's reaction function.''

Gold technical analysis

The hourly chart offers a trapped bias between the trendline support and the overhead resistance near $1,920. Meanwhile, the W-formation is pulling in the price towards the neckline near $1,901.