- Gold gained strong traction for the second straight day and shot to a fresh multi-month high.
- Russia-Ukraine crisis weighed on the risk sentiment and benefitted the safe-haven XAU/USD.
- Technical buying above the $1,877-$1,879 region further contributed to the strong move up.
Gold built on the previous day’s positive move and gained strong follow-through traction for the second successive day on Thursday. The momentum extended through the early European session and pushed spot prices to the $1,890 area, or the highest level since June 2021 in the last hour. A flood of contradicting headlines amid intensifying Russia-Ukraine conflict continued weighing on investors’ sentiment, which was evident from a generally weaker tone around the equity markets. This, in turn, was seen as a key factor that underpinned the safe-haven XAU/USD.
Russian media reported earlier this Thursday that the Ukrainian military forces fired mortars and grenades in four Luhansk People’s Republic (LPR) localities. The LPR is located in the Donbas region, a territory internationally recognized to be a part of Ukraine but run by Russian backed separatists. Ukraine, however, denied shelling separatists’ territory, suggesting that this could be the false flag that Russia is trying to put out to set a pretext for an imminent invasion. That said, the Organization for Security and Co-operation (OSCE) in Europe has recorded multiple shelling incidents along the line of contact in the East Ukraine in the early hours of Thursday.
Russian Ministry of Defense said that around 10 military convoys have left Crimea and released a video showing a logistics unit coming back to its home base after the completion of drills. Adding to this, the latest update from US satellite image company, Maxar Technologies, showed that Russia has pulled back from the Ukraine border. At the same time, the images showed a lot of Russian equipment is still deployed close to Ukraine and that some new equipment has also arrived recently. The developments did little to ease market fears about an imminent Russian invasion of Ukraine, which, in turn, drove investors towards traditional safe-haven assets, including gold.
The risk-off impulse, along with less hawkish FOMC minutes, showing that policymakers are not set on a particular pace of interest rate hikes, led to a sharp pullback in the US Treasury bond yields. This provided an additional boost to the non-yielding gold. The upward trajectory took along some short-term trading stops placed near the $1,877-$1,879 region. Hence, the latest leg up could further be attributed to some technical buying, which might have already set the stage for a move towards reclaiming the $1,900 mark.
From a technical perspective, the emergence of dip-buying on Wednesday and the subsequent strong move up favour bullish trades. That said, RSI (14) on the daily chart has moved on the verge of breaking into the overbought territory and warrants some caution before positioning for any further appreciating move. Hence, momentum beyond the $1,900 mark is more likely to confront stiff resistance and remain capped near the $1,908-$1,910 region. This should act as a key pivotal point, which if cleared will set the stage for an extension of the upward trajectory.
On the flip side, the $1,879-$1,877 region now seems to protect the immediate downside ahead of the $1,870-$1,868 support zone. Any further decline would still be seen as a buying opportunity near an eight-month-old descending trend-line resistance breakpoint, around the $1,856-$1,855 zone. The latter should act as a strong base for gold, which if broken decisively might prompt some long-unwinding trade. The XAU/USD could then accelerate the corrective slide towards testing the next relevant support near the $1,832-$1,830 region.