With peace talks on the horizon, the XAU/USD remains below $2,000 per ounce

On Wednesday, gold suffered greatly as risk sentiment improved. After reaching a 19-month high at the start of the week, the precious metal fell back below $2,000 per ounce. Spot gold fell 3.3 percent to $1,976 per ounce, capping a rally that had taken it close to the all-time high set in August 2020. Gold futures in the United States fell 2.7 percent to $1,988.20. Profit-taking, as well as a sharp drop in oil prices, fueled the reversal, allowing buyers to scoop up bargains in the stock markets on stocks that had previously been hammered by concerns about Russian sanctions.

On Wednesday, a Russian airstrike severely damaged a children’s hospital in the besieged Ukrainian port city of Mariupol. However, risk sentiment improved as oil prices fell sharply after the United Arab Emirates said it would support increasing output as an OPEC member. Brent oil dropped from $131.50bbls to $105.91bbls. The price had reached a high of $138.03bbls at the start of the week in a market that was in disarray due to supply disruptions caused by sanctions imposed on Russia as a result of the conflict.

The price of oil is critical for gold. Oil’s rally has been a major source of concern as markets assess whether the global economy will face a stagflationary or inflationary shock. “The conflict in Ukraine has serious and obvious implications for commodity prices. Will the implications for inflation, however, be more long-lasting than those for growth? Certainly, global central banks are concerned about one particular channel of self-reinforcing inflation — inflation expectations could be de-anchored if the shock permeates the world’s psyche,” analysts at TD Securities explained.

“While the direct implications of the conflict on growth are more limited in the US, indirect implications may be more relevant as ongoing disruptions to supply chains may have a spillover effect, while inflation is also likely to act as a tax on consumers,” the analysts added. “If the shock depresses consumer sentiment at the same time, the Fed will have to walk a tightrope between its unemployment and inflation targets.” As a result, the market has concluded that the Fed will remain nimble in order to avoid tipping the US economy into a recession for the time being, but the subsequent rate path and the path for quantitative tightening are less clear.”

“In this context, gold bugs are more likely to profit from a subsequent increase in central bank demand for gold, having observed the events unfold as potential vulnerabilities for national accounts.” ” Gold’s price has fallen to a familiar area of resistance, which is now acting as support. While the drop was unexpected in terms of magnitude on a single day, it did fall from a previously designated significant level.