Renewed concerns about Ukraine and higher inflation support gold prices

Yesterday traders experienced wild gyrations and volatility when president Zielinski said he was willing to compromise to resolve the escalating military action by Russia. Gold futures opened at $2060 and closed at approximately $1986 based upon the possibility that a diplomatic solution could emerge resulting in Russia removing its troops from Ukraine. That optimism was short-lived as negotiations held in Turkey yesterday resulted once again in a stalemate. Russia was steadfast in its demands and the negotiations yielded no real progress.

In fact, Russia’s military action escalated yesterday by conducting an airstrike that hit a Children’s Hospital in Mariupol. Authorities in Ukraine said that the hospital was hit several times causing “colossal destruction” wounding 17 Ukrainians. The Russians responded by saying, “Russian forces do not fire on civilian targets.”

Escalation by Russia including the targeting of civilian sites has resulted in bullish market sentiment for safe-haven assets which include both gold and the dollar. Once again both the dollar and gold are moving higher.

The dollar gained 0.59% with the dollar index currently fixed at 98.535. Concurrently, gold prices stabilized above $2000 per ounce and as of 5:05 PM EST, the April futures contract is currently fixed at $2001.80 which is a net gain of $13.60. This also effected U.S. equities which traded lower across the board. The NASDAQ composite declined by almost a full percentage point, the Standard & Poor’s 500 lost 0.43%, and the Dow Jones industrial average lost 112 points or 0.34%.

Although renewed concerns about the war in Ukraine were front and center supporting both gold and the dollar today, the United States government released the CPI index numbers from February. Analysts polled by various news organizations were spot on forecasting that inflation levels would rise from 7.5% in January to 7.9% in February. Both rising inflation and the war in Ukraine collectively are strong forces that continue to be highly supportive of gold prices.

On a technical basis, we need to see $2000 become a level of support rather than resistance. Although gold traded to a lower low and a lower high than yesterday the fact that the gold quickly recovered and once again traded above $2000 suggests continued bullish sentiment and the high likelihood that the price of gold will continue to rise. Gold could likely trade in a defined range around $2000 per ounce and build a base of price support at this level before surging higher. However, recent gains in gold prices have been news and headline-driven which means that technical indicators are less likely to give us valuable insight as market participants quickly react to changes in the geopolitical environment between Russia and Ukraine. The negotiations held yesterday indicated the sharp differences remain inferring that a diplomatic solution would not be reached. This means that the war in Ukraine will continue to escalate and get much worse before it gets better.

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Wishing you as always good trading,