Gold Price Forecast: XAU/USD retreats from multi-month high, geopolitical risks limit losses

• Gold witnessed an intraday pullback from a fresh multi-month high touched earlier this Monday.
• Hope for a diplomatic resolution of Russia-Ukraine tensions undermined the safe-haven metal.
• Modest USD weakness extended some support to the commodity and helped limit the downside.

Gold witnessed good two-way price moves through the early European session and was last seen trading modest losses, just below the $1,900 round-figure mark. News that US President Joe Biden and his Russian counterpart Vladimir Putin have agreed in principle to hold a summit on the Ukraine crisis raised hopes for a diplomatic solution to the East-West standoff. This, in turn, lifted the global risk sentiment and tempered demand for traditional safe-haven assets. This was seen as a key factor behind the commodity's intraday pullback from the $1,908 region, or the highest level since June 11 touched earlier this Monday.

The early optimistic move in the markets, however, faded rather quickly after a Kremlin spokesperson said that there were no concrete plans yet for a Putin-Biden meeting. Apart from this, the market fears about an imminent Russian invasion of Ukraine assisted gold to attract some dip-buying near the $1,888-$1,887 region. Satellite images showed multiple new deployments of Russian military units near the border with Ukraine. Moreover, Russia extended military drills in Belarus that were due to end on Sunday. Apart from this, a broad-based US dollar weakness extended some support to the dollar-denominated commodity.

The minutes of the January 25-26 FOMC meeting did little to reinforce expectations for a 50 bps rate hike in March and raised uncertainty about the Fed's tightening plans. Adding to this, the recent geopolitical development could force the Fed to adopt a less aggressive policy stance to combat stubbornly high inflation. This, in turn, kept the USD bulls on the defensive and acted as a tailwind for the non-yielding yellow metal, at least for the time being. This makes it prudent to wait for strong follow-through selling before confirming that gold has topped out and positioning for any meaningful corrective slide.

Investors might also refrain from placing aggressive directional bets ahead of a meeting between the US Secretary of State Antony Blinken and Russian Foreign Minister Sergei Lavrov planned for February 24. Given that US banks are closed on Monday in observance of Presidents' Day, the broader market risk sentiment will be looked upon to grab some short-term opportunities around gold.

Technical outlook

From a technical perspective, gold, so far, has struggled to find acceptance above the $1,900 mark, though the emergence of some dip-buying favours bullish traders. This, along with last week's bullish breakout through a downward sloping trend-line extending from June 2021, supports prospects for additional near-term gains.

That said, RSI (14) on the daily chart remains closer to the overbought zone, suggesting that any subsequent move up is more likely to remain capped near 2021 high, around the $1,916 area. Sustained strength beyond will be seen as a fresh trigger for bullish traders and set the stage for an extension of the recent appreciating move.

On the flip side, any meaningful pullback is likely to find support near the $1,879-$1,877 region. Any further decline could be seen as a buying opportunity, which, in turn, should help limit the slide for gold near the aforementioned trend-line resistance breakpoint, around the $1,855 zone.

Gold daily chart

Key levels to watch