Gold prices rose on Wednesday after Russia sent the strongest signal that the war against Ukraine would grind on. Concerns of an escalation of the Russo-Ukrainian war lifted the safe-haven demand for the yellow metal. But the firm U.S. dollar limited the bullion’s gains. The greenback jumped near May 2020 highs.
Another factor that supports gold is the lower U.S. Treasury yields. The acceleration of inflation to a 40year high in March pushed government bond yields down to their first decline in eight sessions. However, the increase in monthly consumer prices cemented the case for a 50-basis point rate hike next month.
Spot gold is currently trading at $1,967.42 per ounce as of 0645 GMT.
On Tuesday, Russian President Vladimir Putin said the peace talks with Ukraine had hit a dead end. He goaded the West for failing to bring to heel and vowed that his troops would win. Putin claimed that Kyiv derailed the peace negotiations by demanding security guarantees for the whole of Ukraine and making false claims of Russian war crimes.
But Ukrainian President Volodymyr Zelensky mocked Moscow’s insistence that the war against his nation was going well. Meanwhile, U.S. President Joe Biden said that Russia’s invasion of Ukraine amounts to genocide. He has repeatedly called Putin a war criminal, but it was the first he accused Russia of genocide.
OANDA senior analyst Jeffrey Halley noted that gold benefitted from safe-haven demand as the tension in Ukraine escalates and inflation fears grow. But AirGuide corporate advisory director Michael Langford argued that the bullion would be less desirable than other asset classes in a high-interest environment because it has no attributable yield. He predicted some minimal upside in the short term but expects gold prices to slide in the medium to longer term.
On the technical front, Reuters analyst Wang Tao predicted that spot gold would face strong resistance at $1,975 an ounce.
FXStreet analyst Haresh Menghani said gold bulls are waiting for an ascending channel breakout amid the Ukraine crisis. The bullion’s upward move recently stalled near the top end of an ascending channel extending from sub-$1,900 levels. He sees immediate resistance in the $1,979-$1,980 region. A breach of that the zone could accelerate gold’s momentum to reclaim the $2,000 psychology mark. On the downside, Menghani sees resistance in the 1,960-$1,959 region zone.
DailyFX strategist Michael Boutros advised traders to reduce portions of long-exposure / raise protective stops on a stretch towards 1988-2001. He also noted that the IG Client Sentiment Index indicates that gold prices might rise.
In a related development, the holdings of the largest gold-backed exchange-traded fund in the world, SPDR Gold Trust, rose 0.2% on Tuesday to 1,093.10 tons.