In Asian markets, the XAU/USD bleeds out, falling below $1,920

The price of gold, XAU/USD, has been under pressure this week due to conflicting mood around the Ukraine issue against anticipation of a rapid-fire response from the Federal Reserve following last week’s Nonfarm Payrolls report.

XAU/USD is down 0.26 percent at the time of writing, having fallen from a high of $1,926.86 to below Friday’s low of $1,918.32. The dollar got off to a strong start on Monday, boosted by a surge in US Treasury rates on anticipation of a series of Fed rate hikes.

Following the release of the NFP report, US 2-year bond rates hit a new all-time high in the North American session, while US 10-year yields also climbed, indicating a drop in investor demand.

After a large upward revision to the February statistics to 750k, non-farm payrolls gained 431k in March. The unemployment rate decreased to 3.6 percent, while average hourly wages rose 0.4 percent month over month, bringing annual growth to 5.6 percent. The report was mixed, with hourly wages for February reduced down to 0.1 percent, indicating that, together with the March number, the pressure on the US labor market may be fading.

Overall, the report has bolstered the Fed’s case for using aggressive rate rises to keep inflation under control. Fed funds futures have a nearly 4/5 likelihood of a 50 basis point rise next month built in.
Despite this, economists at ANZ Bank believe that demand for safe have assets would continue robust because to the ongoing conflict in Ukraine. “Since Russia invaded Ukraine, the disparity between fair value and current gold prices has jumped from zero to USD300/oz, implying a significant risk premium. In addition, the Russia-Ukraine conflict’ indirect effects will give a considerable degree of support. The wider isolation of Russia will result in an inflationary structural change in the energy industry.”

In other markets, speculation about further penalties kept the general tone cautious in early trade, but this, too, bolstered the US dollar. After Ukrainian and European authorities accused Russian soldiers of crimes, Germany’s defense minister suggested on Sunday that the European Union should consider restricting Russian gas supplies. Ukraine has accused Russian soldiers of carrying out a “massacre” in Bucha, which Russia’s defense ministry has denied.

“Haven flows are expected to keep the yellow metal sustained as long as significant progress on ceasefire discussions and de-escalation remains elusive,” analysts at TD Securities said. “At the same time, the 2-year and 10-year curves flirting with inversion has fanned rumours of a coming recession, providing yet another favorable dynamic for gold.”

Following a 61.8 percent Fibonacci correction of the last negative impulse, the price is moving further into the demand and sustaining area. However, if bulls commit, there is a chance of a rise past the current resistance at $1,950 in the next days, with the possibility of a further advance.