Gold price: Fed’s decision needed to cement the market trend

Gold price held steady above $1,900 on Wednesday as it continues to benefit from its status as a safe haven. Contagion concerns stemming from the collapse of Silicon Valley Bank is a key influential factor. The easing of Treasury yields has further boosted the precious metal.

What’s driving the market?

Concerns that the collapse of SVB may spread into a broader banking crisis has investors running to safe havens; an aspect that continues to benefit gold price. Besides, the event has investors forecasting that the Federal Reserve and other major central banks may have to pause on their interest rate hikes to avert a situation similar to the 2008 financial crisis.

With these Fed expectations, the benchmark 10-year Treasury yields dropped to 3.39% on Wednesday; a level last recorded on 3rd February. The decline in yields has continued to boost gold price by reducing the opportunity cost of holding the non-yielding bullion.   

In the ensuing sessions, gold price movements will also be influenced by the Federal Reserve’s meeting scheduled for next week. Indeed, this economic event is set to offer crucial cues on the precious metal’s medium to long-term outlook.

Late February, gold price dropped to its lowest level year-to-date at $1,806.08 per ounce. In fact, expectations that the Fed will approve higher interest rate hikes for longer yielded a decline of close to 10% in February alone. Following Jerome Powell’s hawkish remarks, analysts largely expected the central bank to approve an increase of 50 basis points in March and beyond.

Notably, there has been a shift in analysts’ expectations and the overall market sentiment. The collapse of Silicon Valley Bank and the subsequent contagion woes have some investors and analysts forecasting that the Fed may be forced to pause on its rate increases; an aspect that has continued to boost gold price.

Indeed, Goldman Sachs is of the opinion that the bank will halt the hikes in its March meeting. Granted, it still expects it to approve a 25 basis points increase in May, June, and July.  

Gold price prediction

A look at its daily chart shows gold price trading above the 50 and 200-day exponential moving averages. These technical indicators point to further rallying. Indeed, it has held steady above the psychological level of 1,900 after momentarily dropping below it earlier on Wednesday.

While I am bullish on gold price, I remain cautious ahead of the Fed interest rate decision. In particular, I expect the precious metal to continue experiencing resistance at 1,930 for a while longer.

In the short term, the bulls will be keen on defending the support at 1,900. A pullback past this zone will give the bears an opportunity to retest the support along the 50-day EMA at 1,852.68.

gold price
gold price

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