Is There Still Hope for Gold to Reach $2,000?

29 mar 2023

The price of gold hit a high of $1,971/oz before retreating and finding support above $1,960. Upbeat equities and higher Treasury yields make it difficult for XAU/USD to continue its recent rally. Fears of a wider banking contagion have also abated, hurting demand for safer assets. The market cheered First Citizens Bank’s agreement to buy all deposits and loans of the failed Silicon Valley Bank. The Federal Reserve's vice chair for supervision, Michael Barr, has suggested that SVB's troubles were due to "terrible" risk management, and that it could be an isolated case.

Additionally, the DXY is trading at 102.60, up 0.20%, adding weight to gold, because markets still expect the Federal Reserve to raise interest rates by 25 basis points in May. The possibility of inflation being greater than the possibility of the banking crisis spreading further has led investors to price in about a 39% chance of a 25-basis-point hike in May.

Despite this, gold is still set to see monthly gains of around 8%, and a bullish engulfing pattern is apparent on the monthly chart, which suggests a bullish short-term outlook.

Investors are also looking towards the core Personal Consumption Expenditures (PCE) price index, which is expected at the end of the week, for more clues on the Fed's monetary tightening plans. If the core PCE print comes in below 4.5%, then the Fed will have to do less to hike rates, which should weaken the USD and allow gold to gain. In this instance, a target for buyers could be $1,900.