Jump to content

Gold Prices Moving to the Ebb and Flow of Geopolitics


Recommended Posts

GOLD FORECAST

  • Geopolitics prolonging gold’s safe-haven allure.
  • Inflation outlook looks up.
Gold Prices Moving to the Ebb and Flow of Geopolitics

XAU/USD FUNDAMENTAL BACKDROP

Spot gold continues to hover around the $1900 psychological mark and will likely remain elevated as long as geopolitical tensions persist. Conditions associated with the Russian invasion of Ukraine are constantly changing in via both political and financial aspects, leaving global markets switching from risk on to risk off. Bullions safe-haven characteristic is allowing for gold prices to stay buoyed despite fluctuating conditions.

A weaker dollar this morning contributed to XAU/USD upside but may be dwarfed by the upcoming Federal Reserve rates meeting. Due to the U.S. being geographically isolated from the war in Europe, the dollar and U.S. economy has been comparatively secluded by the ongoing conflict. The Fed may continue on its hawkish path with many pundits anticipating a 50bps rate hike later this month.

Inflation pressures are being compounded with oil prices on the rise and may play into golds inflation hedge trait (contentious as it may be). The chart below shows inflation expectations over the next five years averaging around 2.6% and of recent shows quite a strong positive correlation with gold.

gold vs 5y5y inflation linked swap

Source: Refinitiv

TECHNICAL ANALYSIS

GOLD PRICE DAILY CHART

xau/usd daily chart

Chart prepared by Warren Venketas, IG

Daily XAU/USD price action has found it tough to push above the current resistance zone (blue) barring the last weeks invasion. Prices are extended to the upside according to the RSI but bears remain cautious in the midst of the ongoing war. Forecasts are difficult at the current juncture but should the war dissipate, we could see downward pressure on gold prices as the Fed looks to tighten monetary policy.

Resistance levels:

  • 2000.00
  • 1959.45

Support levels:

  • 1900.00
  • 20-day EMA (purple)
  • 1850.00

IG CLIENT SENTIMENT BEARISH

IGCS shows retail traders are currently distinctly long on gold, with 73% of traders currently holding long positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment however, due to recent changes in long and short positions we end up with a mixed disposition.

image.png

 

Mar 1, 2022 |  Warren Venketas, Analyst. DailyFX

Link to comment

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • Posts

    • Sainsburys full year earnings and Unilever’s first quarter trading update both say the same thing, UK consumers are in for higher prices. The war in Ukraine, supply chain issues and the effects of ongoing Covid all to blame.      
    • US Dollar (DXY) Daily Price and Analysis US Q1 GDP may stall the greenback’s advance. A 20-year high nears for the US dollar. The multi-month US dollar rally continues with the greenback printing a fresh high today ahead of the first look at US Q1 GDP at 12.30 GMT. The US dollar basket (DXY) has been boosted by renewed weakness in the Euro and the Japanese Yen, as investors move from lower-yielding to higher-yielding currencies, while safe-haven flows continue to benefit the greenback. The US growth release later in the session is expected to show a sharp slowdown from the robust Q4 figure of 6.9%. The markets are currently pricing in growth of just 1% for the first three months of this year, with the slowdown mainly due to a reduction in inventory accrual over the quarter. This release is unlikely to move the greenback, unless there is a large miss or beat, as the Fed believe that 2022 US growth will be robust enough to let them tighten monetary policy sharply without damaging the economy. The latest US Core PCE data – the Fed’s preferred inflation reading – is released on Friday and this may have more effect on the US dollar than today’s GDP data. For all market moving economic data and events, see the DailyFX Calendar. The ongoing US dollar rally has been aided by weakness across a range of G7 currencies including the Euro, the Japanese Yen, and the British Pound. The Euro continues to battle with lowly growth expectations, exacerbated by energy concerns, the British Pound is mired by weak economic data, while the Japanese Yen is in freefall as the BoJ continues with its ultra-loose monetary policy.   The US dollar continues to press higher and looks set to break above 103.96, the March 2020 high. Above here the US dollar would be back at levels last seen nearly two decades ago. The March resistance will likely hold in the short-term, especially with month-end portfolio rebalancing at the end of the week, but US dollar strength is set to continue in the months ahead. USDOLLAR (DXY) WEEKLY PRICE CHART – APRIL 28, 2022 {{THE_FUNDAMENTALS_OF_BREAKOUT_TRADING}} What is your view on the US Dollar – bullish or bearish?   Apr 28, 2022 | DailyFX Nick Cawley, Strategist
    • While Tesla has nothing directly to do with Elon Musk buying Twitter - TSLA stock closed down 12% on news that Musk may have to sell stock and use other holdings to stand against the loan to finalise the purchase of the social media giant.        
×
×
  • Create New...