Author: Mr. Amar – Technical Analyst

Gold has soared to its highest level since August 2020 as chaos gripped markets in the aftermath of Russia’s invasion of Ukraine. After failing to clear the key short-term hurdle around $2,000, gold is posting modest losses near $1990 this morning ahead of the Asian session. On the other hand, the European Union (EU) and the UK’s rejection of a US plan to ban Russian oil imports outright seems to have fuelled the recent market consolidation. Looking ahead, a weak calendar and a freeze on major geopolitical issues could continue to challenge XAU/USD moves. However, a lull in Moscow’s invasion of Ukraine could extend the commodity’s recent pullback.

Many Western countries are considering imposing various sanctions on Russia, and the commodities they export are seeing the biggest gains. These include oil, gas, nickel, copper, and of course gold. US real yields have fallen in recent weeks, 10-year government bonds have a theoretical yield of 1.79%, while the expected 10-year mark to market inflation rate is 2.77%, giving a real yield of 0.98%. Falling real yields generally push gold prices higher as the alternative to investing in Treasuries becomes less attractive from a real yield perspective. Later this Thursday, US CPI data will be released and the market is anticipating an annual headline rate of 7.8% and 6.4% for the year-on-year core rate. Consistently high inflation could have ongoing implications for real yields.

Technically, today’s high in gold opens the possibility of a move to test the all-time high of $2075 recorded in August 2020. A clear bullish break of the 61.8% Fibonacci level around the $2000 line will lead gold buyers into the $2015 to $2020 area, which includes multiple highs. Following that, the year 2020 peak near $2075, and the $2100 threshold will gain the market’s attention.