Gold Price Analysis: XAU/USD rallies from earlier lows in $1920s to $1940s with geopolitics in focus

• Gold has been advancing in recent trade and is now in the $1940s, up from earlier lows in the $1920s.
• Geopolitics is in focus after the EU announced new sanctions on Russia and Putin threatened restrictions on agricultural exports.
• Upcoming US data and Fed speak will also be important for gold traders to monitor.

Ahead of the release of key US ISM Services PMI data for March at 1500BST and public remarks from influential Fed policymakers Lael Brainard and John Williams later in the session, spot gold (XAU/USD) prices are trading higher. Over the course of the last hour, gold has reversed higher from the mid-$1920s to current levels above $1940, where spot prices now trade higher by about 0.5% on the day. The reversal higher from earlier lows could have something to do with the latest sanction announcement from the EU against Russia, which included new import restrictions, including on coal.

The EU also talked up the prospect of more sanctions on Russian oil imports, and Russian President Vladimir Putin announced in response that he might look at restricting agricultural exports to so-called “unfriendly” countries (like those in the EU). Lingering geopolitical tensions and the upside risks posed to global commodity prices as a result of de-globalisation between the West and Russia continue to remain a big reason why investors want to hold gold as both a safe-haven and inflation hedge.

XAU/USD bulls will now eye a test of last Thursday’s highs near $1950, which happen to also coincide quite well with the 21-Day Moving Average at $1948. A break above here would open the door, technically speaking, to a move higher towards late March highs in the $1960s. But the bulls shouldn’t get too overeager. US bond yields continue to trade with an upside bias across the curve and remain close to multi-year highs and the US dollar remains broadly buoyant, both a reflection of the Fed’s continued shift towards more hawkish rhetoric.

Most members have now indicated that they either support or are at least open to 50 bps rate hikes in the coming meeting, amid agreement that the Fed needs to get rates back to neutral as fast as possible to be in a better position to address high inflation and the hot labour market. Upcoming remarks from Fed Vice Chair Lael Brainard and NY Fed President John Williams will likely reinforce this hawkish stance.

A stronger dollar makes gold more expensive for the holders of non-USD currency, while higher yields increase the opportunity cost of holding non-yielding assets like precious metals. Gold bugs should thus keep an eye on the economic/central bank calendar, as it might scupper hopes for a push beyond $1950.