June Gold Ranging as Traders Await Fundamental Breakthrough

Gold futures are edging higher on Tuesday despite soaring U.S. Treasury yields and a stronger U.S. Dollar, a combination that tends to weigh on demand for the non-yielding asset. Perhaps underpinning the market is the intensifying conflict between Russia and Ukraine that is fueling steady safe-haven demand.

At 07:18 GMT, June Comex gold is trading $1941.40, up $6.60 or +0.34%. On Monday, the SPDR Gold Shares ETF (GLD) settled at $180.65, up $1.35 or +0.75%.

Technical factors could also be influencing the price action with the precious metal currently sitting inside the contract’s 50% to 61.8% retracement zone at $1908.10 to $1958.70. Trader reaction to this area could determine the near-term direction of the market.

Fed Chair Powell Shakes Up Financial Markets

Treasury yields rose sharply higher, the U.S. Dollar firmed and U.S. equity prices softened after Fed Chairman Jerome Powell on Monday promised to take tough action on inflation, which he said jeopardizes an otherwise strong economic recovery.

“The labor market is very strong, and inflation is much too high,” the central bank leader said in prepared remarks for the National Association for Business Economics.

Powell also noted rate hikes could go from the traditional quarter-percentage-point moves to more aggressive half-basis-point increases if necessary.

Russia, Ukraine Conflict Intensifying

While Powell’s hawkish remarks may be capping gold prices, the geopolitical conflict between Russia and Ukraine may be providing the support. Just like the rest of us, gold speculators have been trying to interpret the ever-changing headlines about the conflict, which may be the key reason behind the sideways price action.

The recent $182.00 break in gold is a strong sign that the “war premium” has been taken out of the market. Meanwhile, five days of sideways action suggests traders are waiting to see if the situation escalates or if it is dampened by a cease fire, or peace.

What could be keeping the market underpinned are potentially bullish comments from Ukraine’s President Volodymyr Zelenskyy who warned that if peace talks with Russian leader Vladimir Putin fail, it would mean the start of a global war.

“If these attempts fail, that would mean that this is a third world war,” Zelenskyy said in an interview with CNN’s Fareed Zakaria that aired Sunday morning. Ukrainian and Russian officials have met intermittently for peace talks, which have failed to progress to key concessions.

Furthermore, U.S. President Joe Biden has said Russian leader Vladimir Putin’s “back is against the wall” and he could resort to using more severe tactics in Ukraine.

Short-Term Outlook

Technically, a sustained move over $1958.70 could signal the start of another leg up. An escalation of the war in Ukraine is likely to be the catalyst behind the move.

A sustained move under $1897.70 will be a sign of weakness. This could trigger the start of a steep decline. The catalyst behind this move is likely to be a ceasefire. Additional pressure will likely be fueled by a jump in Treasury yields and a stronger dollar.