Gold prices spiked to a new yearly high price in the previous week, but ended the full session in red territory breaking the winning streak it had performed in February. We must note that Gold’s price action was impressive and presented opportunities for traders, as was expected and considering the current happenings around the world. In this report we will provide the key fundamentals behind Gold’s price action, adding to it our personal views and conclusions. We will also briefly explain what traders can focus on in the days ahead and close the report with our technical analysis pointing out price levels that are worth keeping in mind.
Market participants continue to carefully follow the developments currently taking place in Ukraine. We must note that the Gold market spiked upon news that Russian military forces officially attacked a number of sites in Ukraine’s territory and the price reached $1975, a level that was last seen back in September 2020. Yet, the price action for the time being has returned to lower grounds possibly implying traders may be waiting for more information on how the matter could play out. It is our opinion that in the scenario of worsening tensions, traders will not hesitate to apply buying pressure to Gold’s price. An example of the situation worsening could be other countries taking sides and carrying out military attacks, or the use of advanced weapons magnifying the matter even further. Some media sites highlight the dangers that the days or weeks ahead may hold. Finally, if sanctions and sanction retaliations deepen, the effects could hit the global economy in different ways which can ultimately increase economic risk. Sanctions even though a peaceful measure against actions of war, can destabilize demand and supply strings and threaten to worsen already very high inflationary pressures felt on an international basis. In this case investors can turn to Gold which tends to act as a safe haven instrument in times of geopolitical uncertainty.
In the days forward, traders and market participants have a number of important economic releases and events from the US to work with. On the 2nd of March, in the US session we get the important semiannual monetary policy testimony of the Federal Reserve Chair Jerome Powell before the House’s Financial Services Committee. On the 3rd of March, we get the weekly Initial Jobless Claims figure, the January Factory Orders rate and the February ISM N-Mfg PMI figure. Later in the US session we have another monetary policy testimony by Federal Reserve Chair Jerome Powell, this time before the Senate Banking Committee. On the 4th of March we get the key event of the week with the US employment report for February. Please note analysts and traders will have their attention fixed to this event as its results can determine a whole lot for Federal Reserve’s future steps in terms of interest rate hikes. As noted very clearly by FOMC Governor Christopher J. Waller in a speech that took place on February the 24th if the PCE inflation report for January, and jobs and CPI reports for February indicate that the economy is still running exceedingly hot, a strong case can be made for a 50-basis-point hike in March. Such a scenario can move Gold prices abruptly. If the NFP report indicates the job market remains strong then the USD could strengthen and subsequently send Gold prices lower. On the other hand, we also allow room for a general positive outlook for the US economy to create optimism among traders that could be expressed with a risk on sentiment. In this case Gold prices could soar along with the US stockmarkets. Finally, with Oil prices persisting nearby multiyear high levels pressure on the largest economies of the world including the US, China, UK, Japan and the Eurozone could be mounting as energy costs could be pushing good prices much higher making Gold very attractive. We could say that at the moment Gold and Oil prices keep a positive correlation between them. Thus traders should be mindful of this relationship and should Oil prices break to new highs Gold may advance further.
XAU/USD H4
Gold’s price action has stabilized above 1900, a rather bullish sign for the metal in the short term. As Gold is currently moving nearby 1920, we tend to note the next resistance higher to be found at the (R1) 1950 level. If the upward momentum is extended then the (R2) 1975 level can be attended which is also the highest level Gold has reached since September 2020. This is a rather challenging level for Gold to reach and a breach above it will only confirm the bulls continue to be in charge. Under these circumstances, a move to the (R3) 2010 line, our highest resistance for this report could also prevail. In the opposite direction a move downwards can send the price action to the (S1) 1910 level where considerable price action has been carried out in the most recent sessions. Lower, the (S2) 1879 level was visited only once in the past week making it the lowest level Gold has fallen too very recently. In our view the (S2) is of particular importance from a selling perspective and a breach below it can change Gold’s bias to a selling one. We must also note the (S3) 1855 level that was tested various times and withstood its ground from the 11th to the 16th of February. The RSI indicator remains above 50 at the moment implying some bullish appetite is on the move. Our personal outlook for Gold remains sideways with bullish tendencies.
