Gold Price Forecast: XAU/USD hovers around $1,980 ahead of the Putin-Zelenskyy peace negotiations, US Consumer Price Index
Thursday’s negative open shows carry-forward selling after the risk-on urge supported the market. The hopeful undertone comes from a possible Russian-Ukrainian ceasefire. Equities and risk-sensitive currencies sighed with relief as Ukrainian President Volodymyr Zelenskyy agreed to a diplomatic approach to stabilise Ukraine’s economy. Investors rush to risky assets and abandon safe-haven stocks.
A peak near $2,070 on Tuesday has been slashed. The precious metal has lost about 6% in the last two trading days. The US dollar index (DXY) has fallen in lockstep with gold. The former is trading around 98.00, with the US Consumer Price Index (CPI) still unknown. The US CPI is vital since it will determine the Federal Reserve’s monetary policy stance next week.
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As risk sentiment improved, gold weakened. Gold dropped below $2,000/oz after hitting a 19-month high earlier in the week.
Gold slid 3.3 percent to $1,976 an ounce, halting a run that brought it close to an all-time high. US gold futures fell 2.7% to $1,988.20. In addition to profit-taking, the dramatic decrease in oil prices allowed investors to scoop up bargains on companies that had been battered by fears over Russian sanctions.
On Wednesday, a Russian airstrike hit a children’s hospital in the beleaguered Ukrainian coastal city of Mariupol. However, risk sentiment improved when oil prices plummeted after the UAE announced it would support increased output. Brent oil fell from $131.50bbl to $105.91bbl. The price had risen to $138.03bbls at the start of the week due to supply problems created by the conflict’s sanctions on Russia.
Peace negotiations that may lead to a lasting cease-fire
This will be the highest-level talks between the two countries since the war began on Feb. 24.
The New York Times said that “the Kremlin has signalled that Mr. Putin is no longer set on regime change in Kiev.” Some diplomats who have been scrambling to mediate believe Mr. Putin is seeking a negotiated end to an unanticipated bloodbath.
The meeting between Sergey V. Lavrov and Dmytro Kuleba could “crack the door open to a durable cease-fire,” stated Turkish President Recep Tayyip Erdogan on Wednesday.
Gold and oil prices
The rise in oil has raised concerns of a stagflationary or inflationary shock to the global economy. “The Ukraine war has obvious repercussions for commodity prices. But will inflation repercussions outlast growth? Inflation expectations could be de-anchored if the shock reaches the world’s psyche,” analysts at TD Securities explained.
However, persistent supply chain disruptions could have a spillover effect, and inflation is likely to act as a tax on consumers," the researchers added.
“If the shock hits consumer confidence, the Fed will have to balance its unemployment and inflation targets.” The market has determined that the Fed would remain flexible to avoid a recession, but the ensuing rate path and quantitative tightening plan are less obvious."
With the events unfolding as potential national account vulnerabilities, gold bugs are more likely to gain from a subsequent surge in central bank demand for gold.