- Eased tensions in eastern Europe lessened the demand for gold as a safe-haven.
- A decline in the US dollar has boosted the precious metal.
- Investors will be seeking cues on Fed’s policy tightening in January’s FOMC meeting minutes.
Gold is considered a safe-haven in times of economic or geopolitical turmoil. Heightened geopolitical tensions in eastern Europe have been a key bullish driver of gold price. Most recently, concerns that a Russian attack on Ukraine is imminent boosted the precious metal to the highest level since June 2021 at $1,879.48.
On Friday, the US noted that Russia had surrounded Ukraine from three sides with about 130,000 troops. Notably, the warning pushed gold to an 8-month high. Other precious metals like Palladium and Silver also rallied to a two-week and three-week high of $2388.73 and $24 respectively.
However, the precious metals’ safe-haven demand has declined as the geopolitical tensions in eastern Europe appear to be easing. Russia’s defence ministry has announced that some of the troops close to the Ukraine border are returning to their bases.
Nonetheless, international powers have cautiously embraced the move. They are looking to see if Russia will indeed withdraw its troops and adopt a more diplomatic approach to dealing with the ongoing conflicts. Investors’ cautiousness regarding the situation in eastern Europe explains why gold price bounced off Tuesday’s low of $1,844.89 to $1,857.04 as at 08:41 a.m GMT. In the ensuing sessions, traders will be keen on Russia’s decision – an aspect that will likely continue to offer support to the precious metal.
US dollar movements
As is the case with other precious metals and commodities in general, gold price tends to be inversely correlated with the value of the US dollar. Interestingly, both the dollar index and the bullion edged higher on Monday based on their status as safe-havens. However, it has since pulled back from the week’s high of $96.44 to $95.80 as at the time of writing.
The decline in the US dollar has boosted the gold price. Nonetheless, the precious metal’s gains may be curbed as investors await the cues on Fed’s policy tightening in the January meeting minutes scheduled for release later in Wednesday’s session.
Fed officials have different opinions on how aggressive the US central bank should be in tightening its monetary policy and dealing with inflation. On the one hand, St. Louis Fed President, James Bullard has insisted that the Fed need to increase interest rates at a faster pace. In comparison, other members of the Federal Open Market Committee (FOMC) are hesitant at committing to a rate hike of a half-point. As such, details of January’s Fed meeting will impact the US dollar and gold price by extension.
Gold price technical analysis
On a four-hour chart, it is trading above the 25 and 50-day exponential moving averages. It is also above the long-term 200-day EMA. Based on these technical indicators, I expect the precious metal to record further gains in the ensuing sessions. With its safe-haven status at play, and the Fed meeting minutes in the horizon, the range between the resistance level at 1,865.55 and the support along the 25-day EMA at 1,850.21 will be one to look out for.
As a reaction to the January Fed meeting minutes, the precious metal may decline to find support along with the 50-day EMA at 1,839.25. Despite the probable pullback, I expect the gold price to remain above the 200-day EMA at 1,820.