Gold continued its decline for the second day on Tuesday after climbing above $2,000 in the last session as investors turned their attention from the banking crisis to the US Federal Reserve’s interest rate decision. Analysts interpret the market and share their forecasts.
What does it take for gold to move towards record levels?
cryptocoin.comAs you follow, the yellow metal hit $2,009.59 on Monday, its highest level since March 2022, before retreating to $1,955. Michael Hewson, chief market analyst at CMC Markets, says there is some caution in the market ahead of the Fed rate decision. In this context, the analyst makes the following statement:
A pigeon raise could provide the catalyst for further gains towards $2,000. However, for gold prices to move towards record highs, there must be clear evidence that the hikes are over.
Gold will shine amidst the fragile feeling, but…
According to the CME FedWatch tool, markets are pricing in a 16.6% probability of the Fed’s breakout at the end of its March 21-22 meeting, with an 83.4% probability of an increase of 25 basis points (bps). FXTM senior research analyst Lukman Otunuga comments:
The precious metal will shine between fragile sentiment with prospects limiting downside losses around a less aggressive Federal Reserve. Looking at the technical picture, gold could experience a technical pullback towards $1,955 before the bulls move on further.
Gold enjoys safe harbor status
Gold futures hit over $2,000 on Monday, setting the highest intraday price in more than a year, as fears of a crisis in the banking industry have fueled increased demand for gold as a safe-haven investment. However, precious metal prices failed to hold at session highs after rallying nearly 6% last week, raising the question of whether gold’s rally will continue amid efforts to avoid a global banking crisis.
Tim Waterer, chief market analyst at Kohle Capital Markets, says the precious metal is ‘enjoying its safe-haven status for now, given the global banking sector uncertainty.
Higher moves for gold will come in waves
Gold Newsletter editor Brien Lundin says that in response to the latest news as well as gold’s ‘big rise’ on Friday, gold’s spot prices fell and then took action to recoup losses. Lundin also comments:
It’s important to understand that higher movement for gold will ‘come in waves’. As we saw on Friday, we should not chase prices in hot movements, we should look at creating positions on pullbacks. There is little doubt that much remains to be done in this looming banking crisis. Silicon Valley Bank’s hedging policies, ‘or lack thereof’, have probably been copied by numerous banks in the US and around the world.
This opens a window in favor of gold!
Sprott Asset Management market strategist Paul Wong expects gold to continue to gain in the short to medium term. Wong says the troubles in the banking sector are likely ‘still in its early stages’. In this context, the strategist makes the following statement:
Physical buyers have gravitated towards gold, and now investment purchases have likely joined in. The Fed cannot fight inflation and a banking crisis at the same time. The central bank needs to strengthen the banking system first. This opens a window for left-tailed inflation results in gold’s favor.
No defeat expected for yellow metal
Gold, which saw $2,031 for the first time in nearly a year, fell below $2,000. However, TD Securities economists report that a rout is not expected. Economists explain their views on this issue as follows:
While the yellow metal is expected to show a bearish trend, it is not expected to suffer a rout as the Fed will be restrained when signaling and rates are unlikely to rise too much from current levels. For now, there is support around $1,953. Before any move above $2,000 is sustainable, there will need to be evidence that rates will fall and the Fed will allow inflation to stay above target for some time, but much closer to 2%.
Any dove Fed comment to support gold
In the view of strategists at ANZ Bank, increased risk appetite should not deter investors from betting on the yellow metal. Strategists detail their views on this issue as follows:
The evolving risk appetite will see gains across the industry. It is not expected to prevent further entry below this. Uncertain macro ground continues to lure purchases, despite banking regulators rushing to bolster market confidence. Now all eyes are on the Fed’s two-day meeting. Any dove comment will help support the precious metals industry.
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