Gold Holds Ground As Firmer Dollar And Higher Yields Offset Ukraine Worries

Gold prices were flat on Wednesday after climbing to $2,053.99 per ounce in the previous session. Higher U.S. Treasury yields and a strong dollar countered the impact of the Ukraine crisis. Yields surged from eight-week lows, and the dollar rose to more than an 18-month peak.

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Spot gold is currently trading at $2,049.54 an ounce as of 0715 GMT.

Federal Reserve Chair Jerome Powell’s comments supporting rate hike this month boosted the dollar and yields. His remarks weighed on the bullion because it is sensitive to rising interest rates. Also, the stronger dollar made gold more expensive for investors using rival currencies. And higher yields raised the opportunity cost of owning the yellow metal.

Powell acknowledged Russia’s invasion of Ukraine as a “game-changer.” But the central bank will proceed as planned to tame inflation. The Fed chief said he would back a quarter-point rate increase this March. But he is ready to use higher or more frequent hikes to achieve the inflation target.

DailyFX strategist Margaret Yang noted that gold prices breached multiple resistance levels this week. The MACD indicator is trending higher above the neutral midpoint suggesting bullish momentum.  Her DailyFX colleague Christopher Vecchio agreed that gold’s longer-term outlook has become more bullish. He explained that the metal’s weekly EMA envelopes are in bullish sequential order and the weekly Slow Stochastics are in overbought territory. Vecchio also said that the IG Client Sentiment Index suggests that gold price might soon reverse higher.

However, Yang suggested that the bullion could be vulnerable to a technical pullback. In addition, the recent strong rally might encourage some profit-taking activity. Geopolitical catalysts are currently the main drivers behind gold. When the tensions in Ukraine eased, gold could quickly go back down to $1,800, she explained. And there seem to be further escalations in the tensions between Russia and Western powers.

FXStreet senior analyst Dhwani Mehta agreed that Ukraine’s decision not to seek NATO membership improved the market mood. But fears over stagflation still support the safe-haven demand for gold. Also, the metal’s technical set-up remains bullish. She sees a possible retest of the record highs at $2,075 per ounce.

In a related development, the holdings of SPDR Gold Trust, the largest gold-backed exchange-traded fund in the world, climbed to 1,067.3 tons on Tuesday. That is the highest level since March 2021.