By Barani Krishnan
Investing.com -- A couple of months ago, the fizzling of a geopolitical event like Ukraine-Russia might have just taken the bottom out of gold.
Bullion did take a dive lower on Tuesday on the first reports that Moscow was apparently winding down Russian troops concentrated at the Ukraine border.
But as quick as the drop was the rebound from the lows, culminating in a finish that barely hurt gold’s upward momentum built up over the past six weeks. Interestingly, Tuesday’s move down only came after a new three-month high of above $1,880.
Helping gold was data showing the U.S. Producer Price Index grew more than expected in January as producers were paid more for their output in a trend that looked set to exacerbate inflation already expanding at its fastest pace in 40 years.
Despite the higher PPI reading, U.S. stocks rallied on the notion that the Federal Reserve will not be overly aggressive with its first rate hike due in March. That threw a lifeline to gold.
At settlement, gold’s most active contract on New York’s Comex, April, was down just $13.20, or 0.7%, at $1,856.20 an ounce. It fell more than $23 from the prior day’s close to hit session low of 1,845.55.
That low came after an earlier surge to $1,881.60, which marked a peak since mid-November.
“Optimism that Russia could pull back some troops was the primary domino that sent gold lower,” said Ed Moya, analyst at online trading platform OANDA.
“Gold was ripe for some profit-taking but a sustained move lower might not happen as Wall Street remains mostly confident that the Fed won’t overtighten policy this year.”
Bullion started January above $1,800, then fell to around $1,781 before systemically gaining strength by breaking past one resistance point after another — first at $1,830, then $1,850 and on Monday at $1,870 (which incidentally marked a three-month high too).
It’s this organic, block-upon-block build that’s giving confidence to those following bullion’s charge since the start of the year that it isn’t going to stop until it reaches at least $1,900 — and could very likely continue thereafter in a bid for a new record high above $2,000.
“For sure, gold is on a breakout, not fake-out," said Sunil Kumar Dixit, chief technical strategist at skcharting.com. "The bullish mood is all pervasive across major time frames, be it daily, weekly and monthly, with strong stochastics and RSI”