Gold Price Analysis: XAU/USD is underpinned by uncertainty over Ukraine crisis outlook

• Gold has rebounded well from earlier session lows in the $1890 area and is back to the mid-$1910s.
• But a sustained rebound is unlikely against the backdrop of positive Russo-Ukraine updates and yields that may remain buoyant.

Update: The spot gold price (XAU/USD) is stalling at an hourly resistance near $1,920/30 while Russia promised at the peace talks in Istanbul to drastically scale down its military operations around Kyiv and the northern Ukrainian city of Chernihiv. Ukraine has proposed a neutral status scenario with international guarantees that it will not join NATO. The deescalation prospects are giving risk a boost mid-week.

Consequently, gold prices fell sharply following the news of the bilateral talks as the safe-haven demand dried up, pushing the gold back below $1,900. However, there are sceptics out there and the markets are responding in kind. The price of gold pared losses after the talks failed to lead to any physical de-escalation of the Ukraine war. Coldwater was poured over the good news by US Secretary of State Antony Blinken who expressed scepticism about Russia’s promise to de-escalate its military operations around Kyiv. 

End of update

The U.S. dollar was lower, while the yen staged a modest rebound after tumbling on Monday to its lowest level since August 2015.

Spot gold (XAU/USD) prices have enjoyed a healthy rebound from earlier session lows in the $1890 area during US trade and are now back to trading near $1915, with on-the-day losses brought back to just 0.3% versus 1.6% at earlier lows. The rebound was in part facilitated by the presence of strong support in the $1890 area in the form of the 50-Day Moving Average (at $1892) and earlier monthly lows at $1895. This encouraged buyers to pile back, with a sharp pullback from recent highs across the US yield curve also helping.

There was a lot of focus on the first inversion of the US 2-year/10-year yield spread since 2019, a classic recession indicator. Indeed, anxiety regarding US economic weakness in wake of the Fed’s recent hawkish shift in policy guidance and amid ongoing global economic uncertainty as a result of the ongoing Russo-Ukraine conflict has likely helped to support precious metals during US trade.

But in wake of Tuesday’s positive Russo-Ukraine developments that included “constructive” talks which appeared to make progress towards a peace deal and a Russian announcement of scaling down military activities in Ukraine’s north, it remains far to soon to bet on a sustained XAU/USD rebound back to earlier weekly highs in the $1960 area. Further positive Russo-Ukraine headlines later this week could well inject bearishness into gold markets, as was the case momentarily on Tuesday.

There is also a barrage of US data to consider (official March jobs report and ISM surveys, plus Core PCE), all of which should continue to indicate a hot economy, thus supporting the Fed’s recent policy shift. This is likely to keep the trajectory of US bond yields pointed upwards, with higher borrowing acting as a headwind to non-yielding precious metals via a higher “opportunity cost”. Rallies back towards the mid-$1900s may well be sold.