Gold Prices Fall as Ukraine Tensions Ease, FOMC Minutes in Focus

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GOLD PRICE OUTLOOK:

• Gold retreated from an 8-month high to $1,852 as investors’ worries about Russia-Ukraine tensions eased
• Moscow said it is withdrawing some troops from the border, but the US said that an invasion is still possible
• Gold traders will also be eyeing January’s FOMC meeting minutes for clues about the Fed’s tightening path

Gold prices pulled back from eight-month highs to $1,852 during Wednesday’s APAC mid-day trading session as worries about Russia-Ukraine tensions eased after Moscow said that some troops have been called backfrom the border. President Vladimir Putin said that the country is seeking a diplomatic solution to resolve disputes with Ukraine, alleviating concerns about an imminent military attack. Risk assets such as stocks rebounded sharply overnight, whereas havens such as the US Dollar, Treasuries and gold declined.

In the near term, geopolitical risks may remain in focus as the political skies are far from clear. President Joe Biden said that the US has not verified Moscow’s claims and an invasion is still possible. This may cushion the downside for gold and crude oil, both of which are highly sensitive to the situation in Eastern Europe.

Traders are eyeing Wednesday release of US retail sales data and January’s FOMC meeting minutes for clues about the Fed’s tightening path.

The FOMC minutes may reaffirm the Fed’s hawkish tone after Jerome Powell surprised the market by saying that he is open to raising interest rates at every post-January policy meeting this year. However, the market seems to have priced in an even faster pace of rate hikes over the last two weeks, thanks to strong nonfarm payrolls and inflation figures in January. Both sets of figures overshot expectations on the upside. The labor market gained 467k jobs, with substantial upward revisions to the prior two months. Inflation surged to 7.5% on-year, the highest level since 1982.

A slew of Fed officials also expressed hawkish-biased views in response to rising wage pressures and high inflation. Those include St. Louis President James Bullard, who said that the central bank needs to ‘front-load’ rate hikes to restore its credibility. The implied probability of a 50bps rate hike at the March FOMC meeting has soared to nearly 60% from 3.3% a month ago, inferring that markets may be overpricing the Fed’s rate hike cycle. Therefore, the meeting minutes, - which were recorded before the release of jobs and inflation data - may deliver a soothing message.

A less hawkish-biased Minutes document may lead to a pullback in the Greenback and alleviate pressure on gold. On the flipside, a more hawkish-tilted surprise may result in the opposite.

Implied Probability of Rate Hikes at March FOMC Meeting

Source: CME

Technically, gold prices retreated from a key resistance level of $1,876, potentially forming a “Double Top” chart pattern. An immediate support level can be found at $1,834 – the 38.2% Fibonacci retracement. The overall trend remains bullish-biased however, as indicated by the formation of consecutive higher highs and higher lows. The MACD indicator is flattening, suggesting that bullish momentum may be ebbing.

Gold - Daily Chart

Chart created with TradingView

--- Written by Margaret Yang, Strategist for DailyFX.com. 16th Dec 2022