Banking worries push gold above $2,000 in week-long bullish channel

2023-03-20 16:32:24

Spot gold prices rose to US$2,009.70 in early European trading on Monday, setting a new yearly high and reversing the decline in the Asian market, as risk appetite faced new challenges. It's worth pointing out that the precious metal posted its biggest one-day and one-week gain, with broad-based losses in the U.S. dollar and U.S. bond yields boosting gold prices.

The latest rise in gold prices may have something to do with concerns in the banking sector, despite the efforts of major central banks and private banks. Fears of further rate hikes and a negative outcome of the deal between Credit Suisse and UBS also weighed on sentiment.

Still, news of a coordinated effort by major central banks to boost market liquidity added to the headlines, with hints at UBS buying troubled Credit Suisse underpinning a recovery in sentiment during early Asian trade.

However, details of the UBS-Credit Suisse deal suggested holders of Credit Suisse's AT1 bonds would suffer losses, which in turn fueled optimism after a weak start. The same goes for interest rate futures, suggesting imminent hawkish action by key central banks. It should be noted that concerns over the impact of more banks also weighed on U.S. Treasury yields and kept gold prices firm.

Investors should be aware of the fact that market participants are chasing gold to protect themselves from volatility from a potential banking collapse. UBS' acquisition of Credit Suisse eased market concerns about global banking turmoil. The acquisition sent a signal that central banks are ready to bail out commercial banks to restore investor confidence.

Against this backdrop, S&P 500 futures reversed gains that started the week, suggesting that the UBS-Credit Suisse deal was not enough to address nervousness about the global banking sector. Negative market sentiment will persist for some time as the chaos in the banking sector remains unrevealed. At the same time the UBS (ubs) and Credit Suisse (credit Suisse) deal reduced the market as a safe-haven US government bonds demand. That pushed the 10-year U.S. Treasury yield to 3.46%. U.S. 2-year Treasury yields, meanwhile, retreated from multi-day lows hit a day earlier. Notably, U.S. two-year yields posted their biggest weekly drop in three years, while 10-year yields posted their biggest drop since early January.

The Federal Reserve will announce its interest rate decision on Wednesday, so the U.S. dollar index fluctuates around 103.80.

Analysts at Danske Bank expect Fed Chairman Jerome Powell to raise interest rates by 25 basis points despite recent turmoil in the banking sector.

Looking ahead, risk catalysts and moves in the bond market are likely to please gold traders ahead of monetary policy meetings of the Federal Reserve (FED), Swiss National Bank (SNB) and Bank of England (BoE). Also to watch are the first readings of activity data for the major economies in March.

Spot Gold Technical Analysis

Gold bulls took a break early Monday as the RSI relative strength indicator (14) was in a bullish range of 60.00-80.00, indicating a very strong upside momentum for gold.

However, the pullback in gold prices failed to break through the previous resistance line from March 13, which is currently close to $1,965.

Gold prices remain within a one-week bullish trend channel, while MACD signals are bullish.

Therefore, the price of gold does not rule out the possibility of hitting a new annual high. However, the top of the aforementioned bullish channel and the April 2022 high are near $1,996 and $1,998, respectively.

After that, gold prices did not rule out the possibility of rising to the previous year's high of $2,070.

Conversely, a pullback would need confirmation from $1,965, but bears would only be relieved by a break below the support confluence of $1,940, which includes the bottom of the aforementioned channel and the 50-hour SMA.

 Gold Price: 1 Hour Chart

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