Gold Price Forecast: XAU/USD climbs towards $2,070 as Russian oil ban fuels stagflation jitters

Update: Gold (XAU/USD) is determined to reclaim its multi-year high at $2,075.28 despite a cautious positive undertone in the market. The precious metal has rebounded from $2,040 on Wednesday as investors ditched risk-sensitive currencies on intensifying fears of stagflation. It would not be an injustice to tag rising oil prices as a major catalyst behind the intensifying fears of stagflation in Europe.

Since the US has confirmed the prohibition of Russian oil on the US ports and European allies have confirmed a gradual shift towards other suppliers, the WTI oil prices are rising like there is no tomorrow. An economy like Europe, which banks on Russia for its 25% consumption of oil will face heated inflation and stagnancy in growth on a ban of Russian oil.

Meanwhile, the US dollar index (DXY) is struggling to find bids on Wednesday, which has also underpinned the precious metal against the greenback. The disclosure of US inflation numbers on Thursday is likely to remain a major driver for the gold prices.

End of update

Gold buyers take a breather around $2,042, down 0.40% intraday during Wednesday’s Asian session. In doing so, the yellow metal struggles to extend the previous four-day uptrend while staying around the highest levels last seen during August 2020.

Ukraine and Venezuela’s efforts to tame the respective geopolitical tensions with Russia and the US have recently improved market sentiment. As a result, the metal’s safe-haven demand gets a dent, which in turn triggered the latest pullback in XAU/USD prices.

Headlines from AFP, “In a nod to Russia, Ukraine is reportedly no longer insisting on NATO membership,” became the major risk-on catalyst the previous day. The news also joins the confirmation of the first humanitarian corridor in Ukraine to tame the market’s pessimism. Additionally favoring the risk appetite, as well as negatively affecting gold’s safe-haven appeal is Venezuela’s freeing of the American prisoner and the US hint of easing sanctions afterward.

On the contrary, Russia may not cheer Kyiv’s intention to dump NATO membership goal as Moscow may fear the enemy to join the European Union (EU), which in turn demolishes President Vladimir Putin’s unsaid target of putting Kremlin-controlled leader in Ukraine. Recently, Russia called for nationalizing foreign-owned factories that shut operations, which in turn raised doubt on the market’s optimism.

Talking about data, the US trade deficit rallied to a record high and the small business confidence, as signaled by IBD/TIPP Economic Optimism gauge for March, dropped to the lowest in 13 months. Further, China’s Consumer Price Index (CPI) rose past 0.8% forecast to reprint 0.9% prior figures while the Producer Price Index (PPI) crossed 8.7% market consensus with 8.8% YoY figures, versus 9.1% previous readouts.

While portraying the mood, the US 10-year Treasury yields drop two basis points (bps) to 1.85% whereas the S&P 500 Futures rise 0.40% on a day at the latest.

To sum up, the recently mixed geopolitical concerns may challenge gold buyers but concerning over stagflation, due to the latest rally in commodity prices and economic fears because of that, could keep XAU/USD buyers hopeful.

Technical analysis

Gold prices crossed the upper line of a six-week-old rising channel and multiple resistances marked during late 2020 the previous day. However, overbought RSI seems to have triggered the quote’s pullback from its record high of $2,075, printed during August 2020.

Given the latest challenges to the metal’s safe-haven demand, as well as the MACD line’s anticipated pullback from higher levels, gold sellers may attack the previous key resistance area around $2,020.

However, the quote’s weakness past $2,020 will make it vulnerable to breaking the $2,000 threshold while aiming for fortnight-long horizontal support near $1,975.

Meanwhile, buyers will keep their eyes on the $2,075 for fresh entry while targeting the $2,100.

It should be noted that an ascending trend line connecting highs marked in 2011 and 2020, surrounding $2,110 by the press time, will challenge gold buyers above $2,100.

Gold: Four-hour chart

Trend: Pullback expected