Gold Price Analysis: XAU/USD bulls eye test of Q4 2021 highs in $1877s on tense geopolitical backdrop

• Spot gold is consolidating in the $1850-60 area after hitting fresh multi-month highs last Friday on geopolitical tensions.
• As concern about a potential Russian incursion into Ukraine mounts, risks seem tilted to the upside for gold.
• Technical developments also lean bullish after XAU/USD broke above a long-term pennant last week.

Having hit multi-month highs in the $1860s last Friday amid rising geopolitical concerns (as Russian military action against Ukraine, perhaps as soon this week, looks ever more likely) spot gold (XAU/USD) prices have been stabilising in an $1850-60 range. Russia/Ukraine/NATO tensions will be the main driver of market sentiment this week, meaning gold traders will be closely keeping an eye on meetings between Russian and Western politicians over the next two days. The most important of these meetings is a visit by German Chancellor Olaf Scholz to Kiev on Monday and then to Moscow on Tuesday. With US press suggesting that Russian could launch an assault as soon as the middle of the week, and Western leaders warning a Russian attack could come at any time, this meeting may be the last-ditch attempt to prevent war.

Recent news that, in a meeting with Russian President Vladimir Putin, Russian Foreign Minister Sergey Lavrov recommended sticking with the diplomatic path for now, saw gold prices chop within intra-day ranges and did not result in lasting downside. That suggests that risks remain tilted to the upside this week. In the event that diplomacy fails and war does break out, an associated safe-haven bid could easily send XAU/USD towards November’s highs in the $1870s, with a break above that opening the door to a run at the $1900 level. Importantly for the gold bulls, recent technical developments also suggest a bullish bias. Looking at XAU/USD over the past year and a bit, the pair formed a long-term pennant structure. Last Friday, it appeared to break to the upside of this structure, suggesting an extension of upside in the near term.

Aside from geopolitical risks, gold traders will also be keeping an eye on US economic and Federal Reserve developments. January Producer Price Inflation figures are scheduled for release on Tuesday ahead of January Retail Sales and the release of the accounts from the January Fed meeting on Wednesday. Regional Fed Manufacturing surveys for the month of February and a barrage of Fed speak, starting with outspoken hawk James Bullard at 1330GMT on CNBC on Monday, will also be worth keeping an eye on.