Gold, XAU/USD, Russia, Ukraine, Technical Analysis – Talking Points:
- Gold prices saw most active range since November 2020 on Thursday
- Western response to Russia’s attack on Ukraine not as severe as seen
- XAU/USD upside potential remains, but be mindful of PCE data ahead
Gold prices experienced heavy volatility over the past 24 hours as Russia’s President Vladimir Putin attacked Ukraine. At one point, the yellow metal crossed 1974 when prices opened at 1908, finishing at 1902. The true range of gold’s movement on Thursday was 96.15 points, which was the most intense price action since November 2020.
What likely kept gold from hanging on to what could have been the highest close since August 2020? Market sentiment reversed course to close out Thursday’s trading session. It seems that Western sanctions imposed on Russia were likely not as severe as anticipated, for now. US President Joe Biden targeted some of Russia’s largest banks, as well as announcing certain export restrictions to Russia.
Notably, Russia was not cut off from SWIFT. Such an outcome would kick the nation out of much of the global financial system. That risks cutting off Europe to much needed commodities that it imports from Russia, such as energy and wheat. Officials from the European Union may lean on this as a last resort. The Biden administration is also withholding on Russian sanctions that could target metals such as aluminum.
With the worst-case scenario avoided, cooling market sentiment helped bring gold down from the heavens. Notable recoveries were also seen in stock exchanges around the world. Still, the situation remains highly volatile and uncertain. Reports crossed the wires from Ukraine’s Minister of Foreign Affairs, Dmytro Kuleba, that Russian rockets were fired at Kyiv during Friday’s Asia-Pacific trading session.
A further advance from Russia towards Ukraine’s capital, or at the very least reports of such actions, would likely bring volatility back into markets. This also comes ahead of the Fed’s preferred gauge of inflation due later today. The PCE core deflator is expected at 5.2% y/y, a near 40-year high. If Fed rate hike bets come back into play, then that may cool upward gold price action.
Gold Technical Analysis
XAU/USD, having briefly touched peaks from November 2020, sits around the critical 1898 – 1916 resistance zone. A confirmatory close above the latter may open the door to revisiting the 1949 – 1965 range. For immediate support, keep a close eye on the 20- and 50-day Simple Moving Averages (SMAs). These may reinstate an upside focus.
XAU/USD Daily Chart
Chart Created Using TradingView
–— Written by Daniel Dubrovsky, Strategist for DailyFX.com
To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter
