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Gold Price Forecast: XAU/USD bulls stall in a broader financial market correction, eyes on $1,900

The price of gold is down by some 1.26% on Wednesday in midday New York trade after falling from a high of $1,948.01 to a low of $1,913.75 as US stocks recover in a corrective market across the board.   After hitting a low of around 1.68% on Tuesday, the US 10-Year Treasury yield is back up to the 1.84% area as Federal Reserve Chair Jerome Powell signalled the central bank would start raising rates this month despite uncertainties stemming from the Ukraine crisis.

Russian forces are continuing their attempted push through Ukraine from multiple directions, while Ukrainians, led by President, Volodymyr Zelenskyare putting up "stiff resistance," according to US officials. The war in Ukraine has significant and obvious implications for commodities prices. The CRB index, for instance, has rallied to the highest levels since 2014:

Investors fear a persistent inflationary shock and stagflation concerns have played their way through to the price of the precious metal, regarded as a safe-haven. ''For the time being, direct implications of the conflict as a growth shock are more limited in the US, given that direct trade flows are marginal,'' analysts at TD securities argued.

''But indirect implications are more relevant as ongoing disruptions to supply chains are likely to have a spillover effect, while inflation is also likely to act as a tax on consumers. In turn, the market continues to price-out a 50bp Federal Reserve hike for March, but implications for the subsequent rate path are less clear.''

Fed leans towards 25bps
Today, testifying before Congress, Fed Chair Jerome Powell signalled he is leaning towards a 25bps rate rise fed funds in March, but indicated that the Fed could raise rates by 50bps if inflation proves more stubborn. However, ''if the shock simultaneously dents consumer sentiment, the Fed will have to walk a tight-rope between its unemployment and inflation targets,'' the analysts at TDS said.

On the other hand, the analysts also noted that should the ''geopolitical tensions would be unlikely to derail the Fed's plans to hike and to withdraw liquidity using quantitative tightening if inflation expectations show additional signs of de-anchoring.''

Meanwhile, data on Wednesday showed US private employers hired more workers than expected in February and data for the prior month was revised sharply higher as the labour market recovery gathers steam. This comes ahead of this Friday's Nonfarm Payrolls report. 

''Employment likely continued to recover in February following an unexpectedly strong Jan report—despite the Omicron-led surge in COVID cases. We expect some of that boost to fizzle, though to still firm job growth pace,'' the analysts at TDS said. '' Seasonal adjustments were a factor last month and they will likely play a role again in Feb. We expect wage growth to slow to a still strong 0.5% MoM pace.''

Gold technical analysis

The price would be expected to continue higher along with the trendline support following the correction of this week's bullish impulse, so far. The price is meeting old resistance that would be expected to act as a support area from which bids can build. However, from an hourly perspective, there could still be some downside to come yet:

The price has dropped corrected into hourly resistance. Should this hold, then the bears could emerge for another push to extend this daily correction into a deeper move towards $1,911 if not into test the $1,900  psychological level. 

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