Gold price hit the psychologically crucial level of $2,000 an ounce for the first time in about a year. Despite the Credit Suisse- UBS deal, investors still seem unconvinced that such moves will avert further crisis in the global banking sector. The precious metal has been on a bullish trend based on its status as a safe haven in times of economic turmoil. As at the time of writing, XAU/USD was at $1,980.55; down from an intraday high of 1,010.51.
What’s driving the market?
UBS Group AG has committed to buying Credit Suisse in a government-brokered deal aimed at dealing with the crisis that has threatened to spread further across the global banking industry. The $3.2 billion deal has been welcomed by the Treasury Department, Federal Reserve, and the European Central Bank.
Recent efforts by authorities to avert the spread o the banking crisis have brought some calmness to the financial markets. Even so, investors appear not to be fully convinced over the stability of the global banking industry. Indeed, the risk-off mood has continued to boost gold price to a level last recorded about a year ago.
In the short term, the focus will remain on the Fed interest rate decision scheduled for Wednesday. It appears as though the situation is a loose-loose for the Fed and the global economy; an aspect that may continue to support gold price above the resistance-turn-support zone of $1,850 per ounce.
On the one hand, acknowledgement of the banking crisis by easing of the interest rate hikes may yield further jitters over the health of the US and global economy. On the other hand, a hawkish tilt by the central bank may heighten concerns over a probable recession.
Gold price forecast
Over the past nine sessions, gold price has rallied by close to 10%. A look at its daily chart shows that it continues to trade above the 50 and 200-day exponential moving averages. Besides, it is in the overbought territory with an RSI of 73.
For as long as the precious metal continues to trade above the crucial zone of 1,850, the bulls will remain in control. In the short term, I expect gold price to over around 1,990 as traders await further cues from the Fed interest rate decision on Wednesday.
If the Fed holds on to its goal of dealing with high inflation by continuing with its interest rate hikes, gold price may pull back to find support at 1,927.35. With a further decline, the bulls will be especially keen on defending the support at 1,900.
On the flip side, signs that the US central bank will further ease on the rate increases may have the asset trading above $2,000 as a kneejerk reaction. Even so, I do not expect the commodity to gather enough bullish momentum to retest the two-year high of 2,071.30. More particularly, 2,017.77 would be a resistance level worth watching.