Gold Price Analysis: XAU/USD well supported near $1920 as commodity price surge sparks inflation fears

  • Gold is well supported near $1920 amid strong demand for inflation protection as commodity prices surge.
  • Russia/Ukraine headlines have been negative and indicative that de-escalation in the near future remains highly unlikely, supporting haven assets.
  • US data and Fed speak, though worth keeping an eye on, will likely play second fiddle this week.

Gold appears to have started March where it left things off in the final weeks of February and is trading firmly on the front foot, underpinned by a decent dose of demand for inflation protection as commodity prices surge. Spot prices (XAU/USD) currently trade in the $1920 region, up about 0.5% on the day, with tailwinds also coming from global debt markets, where yields have plummetted for a second successive session as traders reduce central bank tightening bets. The US 10-year, for instance, is down a further 9bps on Tuesday to under 1.75%, having been above 2.0% as recently as last Friday. Lower bond yields increase the relative attractiveness of investing in non-yielding assets such as precious metals.

In terms of the latest on the Russia/Ukraine front; headlines have been negative and indicative that de-escalation in the near future remains highly unlikely. Ukrainian President Volodymyr Velenski said talks between the Ukrainian and Russian delegation on Monday did not achieve their intended aim and Russia continues to amass troops in the north in preparation for an assault on Kyiv. All the while, Russian forces continue to gain ground in southern regions of the country and the rhetoric between Russian and Western/NATO officials gets ever more heated.

As a result, energy prices and the prices of other commodities where Russia is a ley exporter are likely to remain underpinned in the near future, which may keep a bid in precious metals amid demand for inflation/stagflation protection. Bulls are subsequently likely to continue to eye a retest of last week’s highs in the $1970s and a potential push back to record highs above $2000. Traders should remember that geopolitics isn’t the only game in town this week, with plenty of US data and Fed speak also to keep an eye on, though this is likely to play second fiddle to Russia/Ukraine developments.

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