GOLD PRICE OUTLOOK:
- Gold prices digesting losses after cooling Ukraine fears trigger pullback
- All eyes on the Kremlin for follow-through on war de-escalation claims
- US ADP report, Fed-speak may encourage hawkish policy expectations
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Gold prices continue to consolidate having stabilized after an aggressive selloff early-March highs above $2000/oz figure. Tellingly, prices fell as the spread between front- and second-month Brent crude oil futures narrowed, and the two-year Fed policy outlook steepened.
Taken together, this seems to suggest that gold’s decline reflects moderation in the markets’ worries about the war in Ukraine. Easing backwardation in Brent contracts speaks to ebbing crude oil supply disruption fears, while a more hawkish Fed view hints that traders see less risk to the tightening cycle from geopolitical disruption.
Gold price chart created using TradingView
Looking ahead, Ukraine-related headlines are likely to remain in focus. Moscow said that it will sharply reduce military activity near the Kyiv – Ukraine’s capital – and take steps toward de-escalation. Nevertheless, another round of bilateral talks failed to reach a concrete ceasefire agreement.
From here, markets will be watching closely to see if Russia is truly prepared to dial back hostilities. On the eve of the invasion late last month, the Kremlin claimed its troops were heading to base after exercises near Belarus. Traders are understandably wary of another bait-and-switch reversal here.
Still, the conflict seems likely to moderate sooner rather than later. Russia’s broadeningof the fight after early setbacks derailed a faster, more surgical strategy seems like scrambling for leverage before the full sting of Western economic sanctions makes delaying negotiations untenable.
Gold prices are likely to extend lower if Moscow appears to be following through on scaling back the fight in earnest. Pressure may be compounded if an upside surprise on a gauge of private-sector jobs growth comes alongside another round of hawkish comments from US central bank officials.
ADP is expected to report a 450k rise in private payrolls. US economic news-flow has increasingly topped baseline forecasts in recently, setting the stage for an upside surprise. Meanwhile, the presidents of the Atlanta (Bostic), Kansas City (George) and Richmond (Barkin) Fed branches are due to speak.
On the technical front, breaking below support anchored at 1908.20 may expose 1870.75 next. Moving to test the $1800/oz figure seems like a pre-requisite for lasting bearish reversal, however. Alternatively, piercing resistance at 1965.55 may set the stage for another challenge of the $2000/oz mark.
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--- Written by Ilya Spivak, Head Strategist, APAC for DailyFX
To contact Ilya, use the comments section below or @IlyaSpivak on Twitter
