Gold Price Forecast: XAU/USD Peaks Above $2,000 On Global Banking Jitters

Gold price pulls back from an annual high above $2,000 after spiking higher on safe-haven demand as fears of global banking contagion persist. XAU/USD is trading at $1,976 per Troy Ounce at the time of writing, down 0.3% daily. It is in a short-term uptrend, however, with the odds favoring more upside to come.

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 the relief was temporary. Fears around broader 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 many banks’ extensive government bond holdings, reducing the value of their assets. This and a fall in bank deposits caused a banking liquidity crunch.

US Dollar Loses Momentum As Fed Rate Bets Fall

The gold price has also gained an 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 an 81% probability of such a hike a month ago, with markets 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 positively impact Gold prices as it will lower the opportunity cost of holding Gold, a non-yielding asset.

Gold Price Technical Analysis

The gold price has pulled back after hitting a new high for the year of $2,009 in the early European session. However, it remains in a short and medium-term uptrend which is expected to continue. Upside momentum is strong; unless it turns on a dime, it should continue rising.

The elevated Relative Strength Index (RSI) on the daily chart suggests that buying Gold may be a little late. At 75, RSI is already in the overbought section above 70. Better to wait until it pulls back before getting in again. On the 4-hour chart, a pull-back already appears to be underway.

From a technical perspective, the next upside target is $2,069 at the March 2022 high. On the other hand, a sudden reversal and move below $1,887 would doubt the uptrend’s validity and increase the chances a new bear trend might be starting.