Gold Recovers On Escalating Ukraine Crisis

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Gold prices bounced back on Monday as the Ukraine crisis escalated. However, the U.S. Federal Reserve’s aggressive plan to contain inflation capped bullion’s gains.

Ukraine rejected Russia’s call to surrender Mariupol. Trapped residents have little food, water, and power. But Deputy Prime Minister Iryna Vereshchuk said there could be no question of any surrender or laying down of arms.

Spot gold is currently trading at $1,924.55 per ounce as of 0730 GMT.

Meanwhile, Fed hawks want the central bank to take more aggressive steps to tame inflation. Fed Governor Chris Waller said he favors a series of half percentage point increases to “front load” tighter policy and have a quicker impact on inflation. St. Louis Fed President James Bullard supports a more aggressive rate increase. He said the central bank should raise the overnight lending rate to more than 3% this year to catch up with elevated inflation. Minneapolis Fed Bank President Neel Kashkari, a former dove, wants to raise interest rates to 1.75%-2% this year.

On the technical front, DailyFX strategist Daniel Dubrovsky said the road ahead would be tough for gold in the absence of further escalation around Ukraine. The soaring inflation around the world prompted central banks to step up. The Federal Reserve began its rate hike cycle, and the Bank of England continued its own. Higher interest rates raise the opportunity cost of owning the non-interest-bearing gold and dampen its appeal.

But FXStreet senior analyst Dhwani Mehta argued that the bullion is on the road to recovery after losing 3.4% last week. Gold price is attempting to breach $1,950 this week. She also mentioned risk aversion persists amid the failed U.S.-Sino talks and the escalating Ukraine crisis. More importantly, bullion price managed to stay above the one-month-old rising trendline support, which is currently at $1,917. Also, the 14-day Relative Strength Index is defending the midline. However, Mehta said gold needs to close above the 21-Daily Moving Average at $1,943 to extend its upward momentum.

In a related development, the holdings of the largest gold-backed exchange-traded fund in the world, SPDR Gold Trust, climbed 0.8% on Friday to 1,082.44 tons. It was the highest level since March 2021.