Gold Prices Eyeing $1916 as Ukraine War Escalates, ETF Inflow Accelerates

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GOLD PRICE OUTLOOK:

• Gold prices rallied over 2% before paring some gains on Monday, eyeing $1,916 for immediate resistance
• Putin put Russia’s nuclear deterrent on high alert in response to Western sanctions, which included barring some Russian banks from the SWIFT payment network
• Geopolitical risks may keep the yellow metal afloat, with ETFs showing continuous inflow over recent weeks

Gold prices extended higher to $1,909 during Monday’s APAC mid-day trading session amid a deepening Ukraine crisis as the fight in the capital city of Kyiv continued over the weekend. President Vladimir Putin put Russia’s nuclear deterrent on high alert after Western powers launched a new round of economic sanctions against it. Those include barring some Russian banks from the SWIFT payment system, potentially disrupting the country’s settlement of trade in crude oil, natural gas, metals and other commodities. The European Union has also decided on Sunday to supply weapons to Ukraine for the war, a move that is unprecedented.

With the conflict between Russia and Western powers over Ukraine is intensifying, haven demand is likely to keep the yellow metal afloat. The large amount of geopolitical uncertainty spurred a flight into safety and buoyed demand for gold, which is perceived as a hedge against such risks. Meanwhile, US equity futures tumbled during Monday’s APAC trade, underscoring sour sentiment.

The SWIFT ban raised concerns about Russia’s exports, sending crude oil prices higher. One of the key implications of this include rising inflation, which may put pressure on the Fed to tighten monetary policy more aggressively.

On the other hand, heightened geopolitical risks and the resulting economic impact may allow the central bank to hold back rate hikes. The likelihood of a 50bps rate hike at the March FOMC meeting has fallen to 4.6% from 24% a day ago, according to CME’s Fed Watch tool. This suggests that the futures market may be weighing geopolitical risks over inflation. With that in mind, the prospect of a more dovish-biased Fed looks set to support non-interest-bearing gold prices.

The world’s largest gold ETF - SPDR Gold Trust (GLD) – saw five consecutive weeks of net inflow. This suggests that more buyers are returning to the bullion market amid rising geopolitical unrest. The number of GLD shares outstanding increased 2.6 million last week, after rising 1.2 million in the prior week. An accelerated pace of subscription to the ETF may be viewed as a bullish signal for prices.

Gold Price vs. GLD ETF Shares Outstanding

Source: Bloomberg, DailyFX

Technically, gold prices are attempting to breach a key resistance level of $1,916 – the previous high seen in May 2021. A successful attempt may intensify near-term buying pressure and open the door for further upside potential with an eye on $1,960. The overall trend remains bullish-biased, as indicated by the formation of consecutive higher highs and higher lows. The MACD indicator is trending higher above the neutral midpoint, suggesting that bullish momentum is dominating but prices may be vulnerable to a technical correction.

Gold - Daily Chart

Chart created with TradingView

--- Written by Margaret Yang, Strategist for DailyFX.com. 28th Feb 2022