XAU/USD holds steady around $1,970, just below multi-week high

• Gold price is mitigating some of the bullish impulse from Tuesday.
• The USD remains on firm footing and capped the upside for the metal.
• Ukraine’s geopolitical risk is offering some support to the XAU/USD.

Gold witnessed subdued/range-bound price action on Wednesday and remained confined in a narrow trading band, around the $1,970 area through the early European session. Despite the fact that the US Core CPI eased for the second straight month in March, the markets seem convinced that the Fed would tighten its monetary policy at a faster pace to curb soaring inflation. This, along with a goodish rebound in the US Treasury bond yields, acted as a headwind for the non-yielding yellow metal.

“Fed governor Brainard (governors always vote) reiterated that controlling inflation is the FOMC’s priority,” an analyst at Westpac explained. “She expects some tightening in financial conditions to help moderate demand, with easing in supply constraints as well, the combination helping bring inflation down. She welcomed the moderation in core goods prices in the March CPI report, but also warned not to put too much stock into one piece of data.”

The expectations are that a 50 bp hike next month will potentially keep the US dollar on track for the March 2020 high near 103 as measured by the DXY. It has already printed a fresh cycle high on the day at 100.333, which was seen as another factor that capped the upside for the dollar-denominated gold.

The downside, however, remains cushioned amid concerns about the persistent rise in inflationary pressures, which tends to boost the metal’s appeal as a hedge against rising prices. In fact, the headline US CPI showed no signs of easing in March and accelerated to levels last seen in 1981. In addition to inflation hedges, gold is continuing to benefit from heightened geopolitical risks and the Russian president, Vladimir Putin, has turned up the heat in this respect.

Putin said on Tuesday that peace talks with Ukraine had hit a dead end. Instead, Putin promised that Russia would achieve all of its “noble” aims in Ukraine. “We have again returned to a dead-end situation for us,” Putin told a news briefing during a visit to the Vostochny Cosmodrome 3,450 miles (5,550 km) east of Moscow. “We don’t intend to be isolated,” Putin added. “It is impossible to severely isolate anyone in the modern world – especially such a vast country as Russia.” This should provide support for gold prices in 2022.

Gold technical analysis

The gold price has been range-trading since mid-March, and if this is  accumulating the 2022 rally, then the price could now be ripening for a bullish continuation as per the daily chart: 

We have seen an attempt to break out, but naturally, a pullback is occurring and it is a question of just how far the price can mitigate the bullish impulse before bulls move back in. However, should a strong US dollar prevail, $1,930 could come under pressure again and if that were to give out, the near term prospects of a move higher will be severely diminished.