Gold Price Analysis: XAU/USD holds near $1840 ahead of key Fed meeting as geopolitical worries rise

As geopolitical concerns mount about a potential Russian military incursion into Ukraine, spot gold (XAU/USD) prices are finding support via safe-haven demand and, for now, shrugging off the negative headwinds from a firmer US dollar. XAU/USD has been gradually rising since the Monday Asia Pacific session open in the mid-$1830s to current levels around $1840. The subdued tone to trade in US government bond markets, where long-term yields are modestly lower (10 and 30-year -1bps), is also acting as somewhat supportive for the yield-sensitive precious metal.

A Goldman Sachs note warning that the Fed might lift interest rates at all of the remaining meetings this year got a lot of attention amongst analysts this morning but doesn’t seem to have moved the needle much for markets. Admittedly, US 2-year yields are about 2bps higher, but as noted, the rest of the yield curve is flat to lower with geopolitics the main topic of discussion so far on the day. That suggests the main driver of Monday’s USD upside (DXY +0.3% to near 96.00, near two-week highs) is safe-haven more than Fed-related, which is why gold has been able to trade on a stronger footing.

Whether gold’s resilience to ongoing dollar advances can last is another question. This week’s Fed meeting is likely to be a hawkish affair, though the bar for the meeting to exceed the market’s very hawkish expectations is seemingly quite higher. Gold bulls will be hoping that at the very least, the precious metal is able to hold within its recent $1830-$1845ish range.

A further escalation in the tense geopolitical situation in Eastern Europe might be enough to send XAU/USD back above $1850 if also coupled with less hawkish than feared Fed vibes. The other major events to watch out for this week include US earnings, which could shift equity and also macro sentiment, and the Advance Q4 GDP growth estimate (on Thursday) and December Core PCE (on Friday).