Gold price barely moved on Monday as investors await the U.S. Federal Reserve’s rate hike plans. But the bullion remains supported the inflation concerns and the Russia-Ukraine tensions. Another tailwind for the yellow metal is the decline in benchmark U.S. 10-year Treasury yield. It reduced the opportunity cost of owning the non-interest-bearing metal and boosted its appeal.
Spot gold is currently trading at $1,838.69 per ounce as of 0701 GMT.
Avtar Sandu, an analyst at Phillip Futures, said investors are hedging against possible U.S. or European Union sanctions if Russia attacks Ukraine. But gold faces headwinds from FOMC expectations, he said. A Reuters survey indicates that the Fed will like raise interest rates three times this year to control inflation.
Meanwhile, the West vowed to impose severe sanctions against Russia if it invades Ukraine. A U.S. official said economic penalties on Russia would have far-reaching consequences. Britain also promised stiff sanctions. British intelligence revealed that Moscow plans to install former Ukrainian lawyer Yevhen Murayev to lead a pro-Russian government in Kyiv.
On the technical front, Reuters technical analyst Wang Tao predicted spot gold to retest a resistance level at $1,850 an ounce. A breach of that level could push the bullion to the $1,860-$,1872 range.
DailyFX analyst Thomas Westwater noted gold’s strong performance last week that pushed its monthly gain into positive territory. He mentioned the decline in the two-year breakeven inflation rate, from 2.47% to 2.35%. It is generally bearish for gold prices because of the metal’s appeal as an inflation hedge.
Westwater highlighted the factors that could influence gold price movement this week. These include the Federal Reserve’s rate-hike decision on Wednesday, the release of the U.S. personal consumption price index (PCE) on Thursday and the FOMC meeting on January 25-26. The market is already expecting four rate hikes this year. If Fed Chair Jerome Powell hints at a tempered rate hike outlook, that could offer a tailwind for the yellow metal.
Another factor is the Russia-Ukraine conflict. If the tensions increase, gold will likely get a boost. The latest news is that military action by Russia could come at any time. The U.S. State Department ordered diplomats’ family members to leave Ukraine on war fears. And President Joe Biden is considering boosting military presence in Eastern Europe to counter Russia’s troop buildup.