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A flood of contradictory headlines in the midst of the escalating Russia-Ukraine conflict continued to weigh on investors’ sentiment, as evidenced by a generally weaker tone in the equity markets. This, in turn, was regarded as a key factor supporting the safe-haven XAU/USD. For the second day in a row, gold gained significant traction and soared to a new multi-month high.
The Russia-Ukraine crisis weighed on risk sentiment, favouring the safe-haven XAU/USD.
On Thursday, gold built on the previous day’s positive move and gained strong follow-through traction for the second day in a row. The momentum continued into the early European session, with spot prices reaching $1,890, the highest level since June 2021, in the last hour.
Russia is attempting to create a pretext for an impending invasion. Nonetheless, in the early hours of Thursday, the Organization for Security and Cooperation in Europe (OSCE) recorded multiple shelling incidents along the line of contact in East Ukraine.
The Russian Ministry of Defense reported that approximately ten military convoys had left Crimea and released a video showing a logistics unit returning to its home base following the completion of drills. And, according to the most recent update from Maxar Technologies, a US satellite image company, Russia has withdrawn from the Ukraine border.
At the same time, the images showed that a large amount of Russian equipment is still deployed near Ukraine, as well as that some new equipment has recently arrived.
The developments did little to alleviate market concerns about a Russian invasion of Ukraine, which drove investors to traditional safe-haven assets such as gold.
The risk-off impulse, combined with less hawkish FOMC minutes indicating that policymakers are not committed to a specific rate of interest rate hikes, resulted in a sharp drop in US Treasury bond yields. This gave the non-yielding gold an additional boost. Technically, the appearance of dip-buying on Wednesday and the subsequent strong move up favour bullish trades. However, the RSI (14) on the daily chart is on the verge of entering overbought territory, requiring some caution before positioning for any further appreciating move.
As a result, momentum above $1,900 is more likely to meet stiff resistance and remain capped near the $1,908-$1,910 region. This should serve as a critical turning point, clearing the way for the upward trajectory to continue.
The upward trend carried some short-term trading stops near the $1,877-$1,879 region. As a result, the latest leg up could be attributed to some technical buying, which could have already set the stage for a move back towards the $1,900 mark.
On the other hand, the $1,879-$1,877 support zone now appears to be protecting the immediate downside ahead of the $1,870-$1,868 support zone.
Any further drop would be viewed as a buying opportunity near an eight-month-old descending trend-line resistance breakpoint in the $1,856-$1,855 range. The latter should serve as a strong foundation for gold, which, if decisively broken, could spark some long-winded trade. The XAU/USD could then accelerate its corrective slide towards the next relevant support zone near $1,832-$1,830.