- Gold witnesses strong selling on Monday and reverses recent gains to a near two-week high.
- Hopes for a diplomatic solution to end the war in Ukraine weigh on safe haven XAU/USD.
- Aggressive expectations from the Fed, rising US bond yields and a stronger dollar add to the intraday selling bias.
The Gold was met with renewed selling pressure on Monday and continued to lose ground during the early part of the European session. The downward trajectory dragged XAU/USD prices to a three-day low, below the $1,930 level in the last hour and was due to a combination of factors. Ukrainian President Volodymyr Zelensky said on Sunday that they are willing to discuss the adoption of a neutral status as part of a peace agreement with Russia. This comes ahead of Russian-Ukrainian ceasefire talks in Turkey later this week and raised hopes for a diplomatic solution to end the war. This, in turn, was seen as a key factor weighing on the safe haven XAU/USD.
Apart of this, a stronger US dollar and higher US Treasury yields put additional pressure on gold, denominated in dollars. Recent statements from a number of influential FOMC members, including Fed Chairman Jerome Powell, convinced investors that the Fed adopt a more aggressive response to combat stubbornly high inflation. Furthermore, markets also seem concerned that rising commodity prices would put further upward pressure on already high consumer prices. This, in turn, pushed the benchmark 10-year US government bond yield to a nearly three-year high, beyond 2.5%, further driving flows away from the non-yielding yellow metal.
Having said that, the latest outbreak of COVID-19 in China and the imposition of a two-stage lockdown in the city of Shanghai could boost some safe haven flows and support gold prices. However, XAU/USD gave back a major part of its recent gains to a near two-week high. In the absence of any major economic releases on Monday, US bond yields will influence the price dynamics around the dollar and provide some momentum to XAU/USD. Aside from this, investors will take cues from new developments surrounding the Russian-Ukrainian war to take advantage of some short-term opportunities around the yellow metal.
gold technical perspective
From a technical perspective, the recovery move from sub-$1,900 levels stalled near resistance marked by the 38.2% Fibonacci retracement of the recent drop from the $2,070 area. A subsequent drop below the 23.6% Fibonacci could have shifted the bias in favor of the bears and support the prospects for further losses. Therefore, some continuation weakness towards the test of the next relevant support, around the horizontal zone of $1,918-$1,916remains a distinct possibility.
On the other hand, the level of $1,945 now seems to act as an immediate obstacle ahead of the region of $1,958-$1,960. The latter coincides with the 38.2% Fibonacci, which if exceeded decisively could trigger a short-covering move. Gold could accelerate the momentum towards the 50% Fibonacci, around the region of $1,984before aspiring to recover the psychological level of $2,000. It is closely followed by the 61.8% Fibonacci, around the area of $2,005which could cap any further gains for XAU/USD and be seen as a key turning point for short-term investors.
Gold 4 hour chart
gold key levels
Source: Fx Street
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