The weekly chart showed that the gold price dropped from a high level to
As the next catalyst, all eyes are on US CPI data and developments in Ukraine.
Due to a better risk-averse sentiment on Wednesday, gold suffered heavily. After reaching a 19-month high earlier in the week, the precious metal dropped back below $2,000/oz.
Spot gold dropped 3.3% to $1.976 an ounce, snapping a rally which took it close to the August 2020 all time high. U.S. futures fell 2.7% to $1,988.20. Profit-taking and a sharp fall in oil prices drove the reversal. This allowed buyers to grab bargains on stocks otherwise hampered by sanctions against Russia.
On Wednesday, fighting continued after a Russian airstrike severely damaged a children’s hospital in Mariupol, a besieged Ukrainian port. But, risk sentiment improved after oil prices dropped heavily following the United Arab Emirates’ declaration that the OPEC member would encourage a rise in output. Brent oil fell from $131.50bbls down to $105.91bbls. The price of Brent oil had reached $138.03bbls at the beginning of the week. This was in an unstable market due to supply disruptions imposed by Russia in the aftermath of the conflict.
Talks of peace that could open the doors to a permanent ceasefire
On Thursday, Sergey V. Lavrov, Russia’s Foreign Minister, will meet Dmytro Kuleba of Ukraine in Turkey in the highest-level talks since February 24, when the war started.
According to the New York Times, Putin has signaled that he is not interested in regime change in Kyiv. This subtle shift is possible and may not be real. However, it has led officials to speculate that Putin might be trying to negotiate a way out of a conflict that has turned into a more bloody slog than he anticipated.
Turkey’s President Recep Tyyip Erdogan, whose top diplomat had made 10 calls to Mr. Lavrov since the beginning of the war, stated Wednesday that the meeting between Sergey V. Lavrov, Dmytro Kuleba, could “open the door to a permanent ceasefire.”
Key to gold: Oil price
As markets evaluate whether the global economy is at risk of a stagflationary, or inflationary shock, the rally in oil has caused a lot of concern. The war in Ukraine has obvious and significant implications for commodity prices. Will the consequences for inflation be greater than those for growth? Global central banks are certain to be concerned about one channel of self-reinforcing inflation in particular. Inflation expectations could be deanchored if shocks penetrate the world’s psyche. Analysts at TD Securities explain this in detail.
Analysts stated that while the direct effects of the conflict on growth may be less in the US, indirect consequences could be more significant as continuous disruptions to supply chains could have an impact on the flow of goods, and inflation could act as a tax for consumers.
The Fed will need to balance its inflation and unemployment targets if the shock causes consumer sentiment to drop simultaneously. The market concluded that while the Fed would remain flexible enough to avoid a US recession, the rate path and path for quantitative tightening will be less clear.
“Gold bugs will be more likely to profit from the subsequent increase in central bank demand for precious metals, as they have seen these events unfold as potential weaknesses for national accounts.”
