The pre-war situation in Ukraine is still the main topic of the world media. However, the protective asset no longer reacts to alarming headlines with rapid growth. What is the reason?
Last week, gold showed the sharpest dynamics in nine months. From Monday to Friday, the quotes jumped by more than 3%. The last time we saw such a rapid rise in prices for the precious metal was back in May.
This time, geopolitical risks have become the main fuel for gold. The expectation that Russia may invade Ukraine has dispersed bullion above the high since June 2021 mark of $1,900.
The Ukrainian crisis escalated even more on Friday, October 18. There were reports in the press about shelling along the front line in Donetsk and Luhansk regions. At the same time, Kiev said it would exercise restraint in response to provocations by the separatists.
Despite the escalation of the conflict, gold ended Friday's session with a slight decline. The quotes sank by 0.1%, or $2.20, and traded at the end of the day at $1,899.80.
The main reason for the pullback of the yellow asset from the 8-month peak is profit-taking by investors. Many traders decided not to miss the benefit and sell bullion after their sharp rise on Thursday, when the price rose by 1.6%.
At the beginning of the new working week, the negative trend in the gold market continues. Today, the reason for the bulls' retreat is the news about a possible meeting between the US president and his Russian counterpart.
On Sunday, the White House announced that Joe Biden had agreed to hold talks with Vladimir Putin about the situation in Ukraine.
The meeting of the two leaders will be preceded by a dialogue between the US and Russian foreign ministers this week. However, both events will take place only if Moscow does not attack Kiev, the American side commented.
Meanwhile, fears that the Kremlin may launch an invasion are intensifying. This is happening against the background of a number of news reports.
On Sunday, it became known that Russia and Belarus will extend joint military exercises, which were supposed to end on February 20.
Also at the weekend, new satellite images appeared in the press, which indicate the next deployment of Russian armored vehicles near the Ukrainian borders.
Another alarming signal is Washington's statement about a possible Russian attack on several Ukrainian cities. America believes that this will happen soon and will lead to significant civilian casualties.
Analysts warn that panic over a potential invasion of Ukraine will continue to negatively affect stock markets in the coming days.
Against this background, the demand for safe haven assets is likely to grow again. Now most market strategists are optimistic about gold in the short term.
Since the yellow asset overcame critical points of technical resistance last week, experts expect that in the coming days the quotes will surely rise above $ 1,900 due to growing geopolitical tensions.
There is also an opinion that any hint of a de-escalation of the conflict between the Kremlin and the West can significantly reduce investors' demand for safe assets, including gold.
What about the Federal Reserve?
In the near future, the value of bullion will depend not only on Russian-American diplomacy, but also on how aggressively the Fed plans to raise interest rates to combat record high inflation.
The January minutes of the Fed's monetary policy meeting were published last week. The report showed that the central bank did not take a more hawkish position, as investors expected, which helped support gold.
During this seven-day period, traders will more closely monitor events that may affect the further rhetoric of the central bank. On the eve of the March Fed meeting, several key reports for the first quarter will be released, as well as American officials will make comments.
The speech of the Fed Governor Christopher Waller deserves special attention. At a meeting on February 24, he will discuss the economic prospects of the United States. We also recommend analyzing the speeches of the presidents of the Federal Reserve Rafael Bostic, Thomas Barkin and Loretta Mester.
Some analysts believe that in the current conditions, when inflation in the United States has reached a 40-year high, gold can benefit from any sentiment of Fed officials.
Even if representatives of the central bank lobby for an emergency rate hike, this is likely to have a positive impact on the value of the yellow asset. According to experts, the Fed will not be able to reset its policy so as not to bring down the US financial system.
