Gold Price Forecast: XAU/USD stalls just ahead of $1,900, driven by Ukraine crisis ahead of the Fed

• Gold is offered but is running into a demand area.
• XAU/USD bulls could be tempted should the bears start to bail out.
• Gold to extend downward correction on hawkish Fed.

The gold price is on the backfoot on Wednesday with the signs of a compromise by Russia and Ukraine in "more realistic" peace talks. This also weighed on the US dollar that slid further from almost two-year highs reached over the past week. Markets now await a likely rate hike by the Federal Reserve.

The Fed is expected to boost its benchmark overnight rate by 25 basis points when it releases a policy statement at 2 pm ET (1800 GMT). However, this is well and truly priced in, so the decision itself may not be the driver. Instead, traders will be in anticipation of how hawkish the Fed will be in the face of the Ukraine crisis. 

Meanwhile, the signs of Ukraine and Russia compromise has sent relief through global financial markets. Russia's foreign minister, Sergei Lavrov, also said some formulations of agreements with Ukraine were close to being agreed upon. Moscow said the sides were discussing status for Ukraine similar to that of Austria or Sweeden, meaning being members of the European Union but staying neutral and outside the NATO military alliance.

Risk rallies in global stock markets

Ukraine's chief negotiator said it would give Kyiv binding international security guarantees to prevent future attacks. Ukrainian President Volodymyr Zelensky said peace talks between Russia and Ukraine were sounding more realistic but more time was needed, as Russian airstrikes killed five people in the capital Kyiv and the refugee tally from Moscow's invasion reached 3 million.

In light of the prospects of a ceasefire that could come in due course, abating the risks of further escalation in Europe, or indeed worldwide, world stocks recovered ground on Wednesday. The MSCI world equity index rose 0.87%, moving away from the one-year lows hit in the previous session. We have seen a relief rallying European stocks as well, with STOXX gaining 2.2%. On Wall Street, the S&P 500 is u over 1%, the Nasdaq Composite higher by 1.5% and the DJI is higher by 0.7%.

Gold on the Fed

Analysts at TD Securities have argued that ''we could now see a coordinated reversal of flows should the FOMC meeting tilt hawkishly.''

''In this lens, while we don't expect much forward guidance, a rise in the dot plot could be a potential catalyst. We look for an increase in the median to 5 dots for 2022 from 3, and an increase beyond this could be seen as very hawkish.''

''Importantly for global macro, any details on caps for the balance sheet runoff could also push rates higher, with quantitative tightening likely to be a particularly potent channel for asset prices.''

Gold technical analysis

Gold is meeting a support area on the daily chart at the time of writing and is due for a correction from within. There is room for a continuation to 24 Feb. lows $1,878, but as it stands, a 50% mean reversion from here could be on the cards, targeting the neckline of the M-formation at around $1,960/70.