Gold Price Forecast: XAU/USD holds below a key technical -61.8% golden ratio

Gold prices are volatile on Tuesday as risk sentiment ebbs and flows surrounding the Ukraine crisis.
The US dollar will be a key focus this and next week due to CPI and the Fed.
Traders are hopeful that a dialogue can start between Russia and Ukraine with regards to a compromise.

Ross J Burland FXStreet

Update: Gold, XAU/USD is a touch soft in early Asia, down 0.13% at the time of writing as the price backs away from a key technical level on the longer-term charts, namely the golden -61.8% ratio of 2021's range. This is illustrated in the technical analysis below.

Meanwhile, the three main US indexes ended lower on Tuesday as traders took on board the latest developments surrounding the Ukraine crisis. In one of the latest updates, the United States has banned Russian oil and other energy imports as a result of its Ukraine invasion. The price of oil is a driver in financial markets, which was a touch softer on prospects of a dialogue that could come between the Ukraine that is willing to compromise with Russia's redlines.

End of update

At $2,041/oz, gold prices are higher by 2.20% on the day despite a $50/oz drop in midday New York on the back of a spike in risk appetite. XAU/USD gave back the majority of the session's gains following headlines that swept through the Twitter feeds, rehashing old news pertaining to Ukraine's tone of compromise with Russia.

Overall, however, market risk sentiment remains low as the US has said it will ban imports of oil and gas from Russia. Nevertheless, an interview between Ukraine's president Volodymyr Zelenskyy and ABC News from Monday night was published by The Associated Press that emphasises that Ukraine is no longer pressing for NATO membership for Ukraine. Additionally, Zelensky said he is open to "compromise" on the status of two breakaway pro-Russian territories that President Vladimir Putin recognized as independent just before unleashing the invasion on February 24.

On the knee-jerk, US oil fell around $8.50/bbls and the gold price has also been sold-off by some 2.4% or around $50.00/oz. DXY, a measure of the US dollar vs a basket of currencies fell hard as well by around 48 pips while the euro rallied to session highs of 1.0953.

Looking ahead, US CPI and Fed in focus

Meanwhile, markets are in anticipation of this week's inflation data and next week's outcome of the Federal Open Market Committee's two-day meeting.

''For the time being, the market has concluded that the Fed will remain nimble as to not tip the US economy into a recession, but the subsequent rate path and the path for quantitative tightening are less clear,'' analysts at TD Securities said. ''In this context, gold bugs are more likely to benefit from a subsequent rise in central bank demand for gold, having observed the events unfold as potential vulnerabilities for national accounts.''

As for the greenback, we are in the blackout period of Federal Reserve speakers ahead of next week's Federal Reserve meeting. ''Between the ongoing risk-off impulses and the Fed outlook for tightening, we believe the dollar uptrend remains intact,'' analysts at Brown Brothers Harriman said.

''Recent comments support our view that the Fed is on track to start the tightening cycle with a 25 bp hike on March 16. WIRP suggests nearly 100% odds of liftoff then, which we think is spot on. We had always been sceptical about a 50 bp move and the Ukraine crisis has quashed expectations for a larger move,'' the analysts added.

''Looking ahead, nearly 175 bp of tightening is priced in over the next 12 months, up from 150 bp seen at the end of last week, followed by another 25 bp in the following 12 months. Such a path would see the Fed Funds rate peaking near 2.0% vs. 1.75% at the end of last week. We continue to believe that the terminal rate will have to be much higher but at least the market is moving in that direction again.''

Looking forward to this week's key inflation data, analysts at TD Securities explained that the Core prices have likely eased on an MoM basis, ''but the pace is expected to have stayed fairly strong''

''While inflation in used vehicles likely slowed, it was probably offset by continued strength in shelter prices. An expected 7% MoM surge in gasoline prices also likely added to headline pressures. Our m/m forecasts imply 7.8%/6.4% YoY for total/core prices, up from 7.5%/6.0% in Jan.''

Gold technical analysis

From an hourly perspective, the price has met support and popped higher which could indicate that there is more to go to the upside for the sessions ahead. With that being said, a break of the $2,020s opens the risk of a daily correct as follows:

Gold weekly chart

The weekly chart show that the price has reached a -61.8% golden ratio of the 2021 range.

Author

Ross J Burland

FXStreet

Ross J Burland, born in England, UK, is a sportsman at heart. He played Rugby and Judo for his county, Kent and the South East of England Rugby team.

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