FX.co ★ Gold: Forecast for the week

Gold quotes started with a sharp drop on Monday. Will this negative trend continue throughout the week? Or will bullion manage to find an upside momentum?

Last week, the precious metal market continued to experience strong volatility due to geopolitical uncertainty.

The Russian-Ukraine military conflict has been going on for more than a month. However, diplomatic ways to solve it have not yet been found.

Also, gold prices fluctuated as investors assessed the possibility of a more aggressive policy of the U.S. Federal Reserve.

Recall that this month, the U.S. regulator raised interest rates by 25 basis points for the first time since 2018 to counter rising inflation.

However, now that geopolitics has inflamed inflationary risks, Fed Chairman Jerome Powell does not rule out that next time the central bank may raise rates immediately by 50 basis points.

The Fed's hawkish rhetoric drove the yields of 10-year U.S. government bonds late last week. On Friday, the indicator reached 2.503%, the highest level since May 2019.

Meanwhile, the dollar index also showed a dizzying rise. By the end of the week, it closed at 98.85 points, reaching more than a weekly high.

Against this background, gold, which is in inverse correlation with the U.S. currency, fell in price on Friday by 0.4%, or $8. Bullion finished trading at $1,952.2.

However, gold was able to rise by more than 1.3% over the week, despite concerns about the Fed's rate acceleration. The yellow asset was supported by a geopolitical factor, in particular, new sanctions imposed by the West against Russia.

News concerning the relationship between the Kremlin and its Western opponents continues to influence the price of gold in the current seven-day period as well.

In the coming days, another round of peace talks between Russia and Ukraine should take place. Hope for a de-escalation of the conflict lowered the value of the precious metal on Monday morning. So, at the time of preparation of the material, the bars decreased to $1,949.

However, some analysts remain optimistic about gold in the short term. It is believed that this week the quotes will be able to break through the resistance at the level of $2,000.

How is this possible?

The recent flattening of the U.S. interest rate yield curve is raising concerns that it may be "inverting."

Therefore, experts advise investors in the near future to focus on the ratio of 2 indicators: the yield of U.S. bonds for 2 years and 10 years.

If the interest rate on 10-year Treasury bonds falls below the 2-year rate, this will cause the yield curve to invert, which is often seen as a strong sign of an approaching recession.

In this case, the demand for gold as a defensive tool could rise again, which will lead to a rise in quotes above $2,000, market strategist Phillip Streible said.

Last week, bullion traded in a range between $1,925-1,950. Gold's ability to quickly return to these levels after it slipped to $1,900 inspires optimism about its future prospects, said analyst Frank Cholly.

He believes that gold has a chance to cross the $2,000 threshold again if it can strengthen above $1,950 and break through $1,975 in the coming days.