Gold price channeling higher after banking collapse, pullback possible in the short term
- Gold price pushed higher by bulls as safe-haven demand rockets on global banking fears.
- UBS takeover of troubled Credit Suisse only temporarily calms markets.
- Gold gains from subdued US Dollar as bets for next Fed hike fade.
Gold price pauses in its uptrend after spiking higher on safe-haven demand, as fears of global banking contagion persist. XAU/USD is trading at $1,969 per Troy Ounce at the time of writing, down 0.3% on the day. The precious metal is in a short-term uptrend, however, with the odds favoring more upside to come.
Gold news: UBS takeover fails to calm markets
A deal to enable rival UBS to take over troubled lender Credit Suisse over the weekend temporarily reassured investors in the early European session and stabilized sentiment but relief was temporary. Fears around wider banking stability continue to propel investors into safe-haven assets. Stage directions: Enter Solid Gold.
The collapse of Credit Suisse and others, such as Silicon Valley Bank (SVB) and First Republic Bank before it, was triggered by a drying up of liquidity. The rise in inflation and interest rates to combat it has led to a fall in the value of the extensive government bond holdings of many banks, reducing the value of their assets. This, combined with a fall in bank deposits, caused a banking liquidity crunch.
US Dollar loses momentum as Fed rate bets fall
Gold price has also gained upside from a fall in interest rate expectations. Previously the US Federal Reserve had been expected to continue raising rates aggressively at its next meeting on Wednesday, March 22, however, fears even higher interest rates could exacerbate the banking crisis have lowered the probability of a 0.25% rise to only 59.8% according to the CME FedWatch tool, a market gauge of the future Fed Funds rate. This compares to over a 81% probability of such a hike a month ago, with markets then also pricing in an almost 19% probability of a larger 0.50% hike.
If bets for future interest rate hikes from the Fed continue to decline, this will have a positive impact on Gold price as it will lower the opportunity cost of holding Gold, which is a non-yielding asset.
Gold price technical analysis
Gold price pauses after hitting a new high for the year of $2,009 in the early European session. The yellow metal remains in a short and medium-term uptrend which is expected to resume once the sideways consolidation ends.
The XAU/USD pair is channeling higher on the 4-hour chart and despite a pullback over the last few bars it is likely to continue. The Relative Strength Index (RSI) momentum indicator is looking like it will exit overbought and if the curent 4-hour bar ends on a bearish note it will confirm a sell signal and the correction will probably continue lower. Support from the base of the channel at roughly $1,950-60, however, is likely to provide a floor for Gold price from where it can regroup and mount a recovery back up inside the channel. The short-term trend remains bullish and only a decisive break and close on a 4-hour timeframe below the lower channel line will turn the picture bearish.
From a technical perspective, the next upside target is at $2,069 at the March 2022 highs. A sudden reversal and move below $1,887, on the other hand, would bring into doubt the validity of the uptrend and increase the chances a new bear trend might be starting.
Gold price: 4-hour Chart