The bullion advanced notably on Tuesday, erasing Monday’s losses, but the short-term situation seems unclear. The yellow metal still trades below the critical level of $2,000.
Politicians calmed the markets and weakened gold
The market sentiment improved at the beginning of the week as more news of failing bank takeovers emerged. In addition, US policymakers assured lawmakers they have the “tools” necessary to prevent further financial industry contagion.
On Monday, the markets were buoyed by the news that First Citizens Bank had acquired the defunct Silicon Valley Bank (SVB) assets in a deal similar to UBS’s acquisition of the failing Credit Suisse.
Vice Chair for Supervision of the Federal Reserve, Michael Barr, stated that the central bank would be “totally responsible” for any supervisory or regulatory failings concerning Silicon Valley Bank, which was the first US bank to fail two weeks ago, setting off a domino effect.
As a result, US yields popped, with the 2-year US yield soaring above the 4% threshold again, undermining gold prices. Furthermore, gold’s struggle to maintain the $2,000 level has also prompted speculation that the yellow metal will consolidate deeper in the coming days, particularly if risk appetite rebounds further.
“If turbulence in the banks subsides, we could see gold give back some of its recent gains, and from a technical perspective, the two failed runs at $2,000 have left us with a possible double top forming, with the neckline around $1,935,” said Craig Erlam, an analyst at online trading platform OANDA.
Central banks caused confusion
While future interest rate forecasts remain uncertain, the current volatility in the financial markets might persist. At recent meetings, all central bankers, most notably the US Federal Reserve (Fed), declined to provide a clear roadmap for their monetary policy, confusing investors.
Still, the World Gold Council admits that bringing inflation down to 2% is inflicting economic and financial harm, likely leading to the point that we may be nearing the top of central bank hawkishness. If that is the case, the price of gold could be supported, especially if accompanied by a mild recession.
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Despite the current banking turbulence, the Conference Board’s consumer confidence was higher than projected. The value was 104.2 as compared to the expected 101 for March. Moreover, the Conference Board’s one-year inflation expectations index increased slightly after dropping sharply in February.
The outlook remains optimistic
The important support region may be between $1,935 and $1,945, where past cycle highs have formed. Gold would still have a chance to strike the $2,000 mark gain if that support is held.
A decline below this support, on the other hand, might result in a further downturn, potentially reaching $1,885. However, as long as bullion trades over its 200-day moving average ($1,780), the long-term view appears optimistic.
Gold futures 1D chart, source: tradingview.com, author’s analysis