Gold Price Analysis: XAU/USD remains capped under $1950, traders assess Russo-Ukraine talks, Fed developments

• Gold prices remain capped under $1950 despite weaker equities as traders mull Russo-Ukraine peace talks, recent Fed developments.
• Some think the bank’s hawkish shift this week may be weighing on gold’s appeal and preventing a rebound.
• Gold is currently on course for its worst one-week performance in nearly four months.

Despite a modest end-of-week pullback in the global equity space as investors mull the Russo-Ukraine war, inflation and central bank tightening risks, spot gold (XAU/USD) prices are struggling to build on Thursday’s gains. Indeed, the $1950 mark continues to act as a ceiling for XAU/USD which, at current levels near $1940, trades with modest on the day losses of around 0.1%. As traders continue to assess the state of Russia/Ukraine peace negotiations (no signs of any breakthrough just yet), attention now turns to a call between the US and Chinese Presidents. US President Joe Biden will reportedly use as an opportunity to urge China President Xi Jinping not to offer military aid to Russia.

Though gold prices did find solid support in the $1900 around the middle of the week, prices remain on course for their worst week in nearly four months. At current levels, spot prices are down just under 2.5% on the week, with traders citing this week’s surprisingly hawkish Fed policy announcement as adding to reluctance on Friday to add to longs at or above $1950. To recap, the central bank hiked interest rates by 25bps for the first time in three years and signalled intentions to lift interest rates a further six times this year, followed by a further four in 2023, with Fed Chair Jerome Powell flagging rising inflation risks and the need to act.

Higher interest rates increase the opportunity cost of holding non-yielding precious metals and can therefore weigh on demand for gold. Meanwhile, though the current inflationary environment, which has been exacerbated in recent weeks by geopolitical developments between Ukraine and Russia, is keeping gold underpinned amid demand for inflation protection, it may continue to push the Fed in a more hawkish direction. Two of the Fed’s most hawkish policymakers James Bullard and Christopher Waller were both on the wires on Friday calling for an accelerated pace of tightening this year.

They have been ahead of the curve regarding Fed policy over the last year and there is a risk that if they can persuade the rest of the central bank’s policymakers to turn even more hawkish, rates could be moving up by more than the 150bps currently expected this year. That could be a headwind for gold. In the more immediate future, geopolitics remains the key factor to monitor amid hopes for Russo-Ukraine peace. More Fed speakers will be on the wires later with Michelle Bowman, Charles Evans and Thomas Barkin all slated to speak.