GOLD FORECAST
- U.S. sanctions on Russia largely dismissed by markets.
- Safe haven appeal persists sustaining gold prices.
- Money markets less hawkish on Fed rate hike potential.
XAU/USD FUNDAMENTAL BACKDROP
Spot gold came off yearly highs last seen in June 2021, pushing above the psychological $1900 per ounce mark. After sanctions imposed on Russia by U.S. President Joe Biden, gold is tracking marginally lower this morning after a volatile day yesterday. As long as tensions remain in the Russia/Ukraine region, bullion is likely to remain elevated irrespective of political ping-pong. Gold tends to garner favor from its safe-haven allure while bond yields tend to fall – lowering the opportunity cost of holding the non-interest bearing yellow metal.
Expectations around supply disruptions have seen commodity prices supported which may add to rampant global inflationary pressure, thus playing into the tenuous ‘inflation hedge’ characteristic of gold.
From a dollar perspective, markets are pricing in an almost 35% probability of a 50bps Fed rate hike in March, less dovish than prior (+/- 50% chance) adding to gold’s appeal.
FEDERAL RESERVE INTEREST RATE PROBABILITIES
Source: Refinitiv
TECHNICAL ANALYSIS
GOLD PRICE DAILY CHART
Chart prepared by Warren Venketas, IG
The daily XAU/USD chart reflects the resistance seen after breaching 1900.00, similar to price action in mid-2021 (blue). The Relative Strength Index (RSI)currently its in overbought territory, supportive of bears rejection around 1900.00. Should geopolitical pressure de-escalate, gold may be in for a re-test of the 1850.00 support zone.
Resistance levels:
Support levels:
- 20-day EMA (purple)
- 1850.00
IG CLIENT SENTIMENT FAVORS UPSIDE
IGCS shows retail traders are currently distinctly long on gold, with 65% of traders currently holding long positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment however, the recent change in longs and shorts result in a short-term bullish bias.
Contact and follow Warren on Twitter: @WVenketas
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