Gold Price Forecast: XAU/USD retreats further from YTD high, holds above $2,000 amid Ukraine crisis

• Gold witnessed some profit-taking on Wednesday and eroded a major part of the overnight gains.
• Strong recovery in the equity markets turned out to be a key factor that weighed on the commodity.
• Weaker USD, stagflation fears, Ukraine crisis warrant some caution for aggressive bearish traders.

Gold stalled its recent strong bullish momentum to the highest level since August 2020 and witnessed a corrective pullback on Wednesday. The downward trajectory extended through the mid-European session and dragged spot prices back closer to the key $2,000 psychological mark. The global equity markets made a solid comeback in reaction to the news that Russian Foreign Minister Sergey Lavrov and his Ukrainian counterpart Dmytro Kuleba have agreed to meet on Thursday. This would be the first potential talk between the two officials since Russian troops invaded Ukraine on February 24 and revived hopes of a diplomatic solution to end the war in Ukraine. The development triggered a risk-on trade, which, in turn, was seen as a key factor that prompted traders to lighten their bullish bets around the safe-haven precious metal.

This, along with a fresh leg up in the US Treasury bond yields, drove flows away from the non-yielding yellow metal. The recent monster gains in commodity prices have been fueling stagflation fears, which, acted as a tailwind for the US bond yields. Investors remain concerned about the rapidly deteriorating outlook and an inflation shock in the global economy. This might lend some support to gold, which is considered as a hedge against inflation. Apart from this, the ongoing US dollar retracement slide from the highest level since May 2020 could limit losses for the dollar-denominated commodity. Moreover, the risk of a further escalation in tensions between Russian and Western powers should cap the optimistic move in the markets.

In fact, US President Joe Biden on Tuesday imposed an immediate ban on Russian oil and other energy imports. Britain matched the move and announced that it would phase out the import of Russian oil by the end of 2022. the European Union announced new sanctions against Russian individuals and Belarus banks. The Russian foreign ministry reportedly said that the response to the Western sanctions will be sensitive and precise. The fundamental backdrop supports prospects for the emergence of some dip-buying, warranting some caution before confirming that gold prices have topped out and positioning for any meaningful corrective slide.

Technical outlook

From a technical perspective, a subsequent decline below the $2,000 mark could get extended towards the next relevant support near the $1.980 area. Some follow-through selling would negate the near-term positive bias and prompt aggressive long-unwinding trade, paving the way for deeper losses. Gold might then turn vulnerable to accelerate the fall towards the $1,950 support zone.

On the flip side, momentum back above the $2,020-$2,022 area now seems to confront resistance near the $2,050 region. This is followed by the overnight swing high, around the $2,070 zone, and the August 2020 peak near the $2,075 region. Sustained strength beyond would mark an uncharted territory gold and set the stage for a further near-term appreciating move, possibly towards the $2,100 round figure.

Key levels to watch