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Forecast Future Price Action

Gold Prices Soar On Market Volatility, But Will Fed Action Reverse Gains?


Gold prices have been on a tear in the past week, boosted by risk aversion across financial markets, triggered by worries about the health of Credit Suisse. The yellow metal has risen above $1,960/oz, its highest level since April 2022. The benchmark 10-year US Treasury bond yield is down nearly 5% on the day near 3.4%, allowing XAU/USD to cling to its impressive daily gains.[0]

The US inflation print for February came in at 6% year-on-year, indicating disinflation but at a pace much lower than what the Fed would like.[1] As a result, markets see an 80% chance of the Federal Reserve raising interest rates by 25 basis points next week and a 55% chance of one more rate hike in May.[2] The CME FedWatch Tool also shows that markets see the Federal Reserve cutting interest rates by late summer.[2]

With inflation still way above target, the aggressive downward revision in the Fed’s rate hike cycle might reverse if the Fed sees an additional need for action to combat inflation. This could trigger another fall in the Gold price towards the $1,800 mark in the second quarter, followed by a rise to $1,950 by year-end, according to experts at Commerzbank.[3]

The market turmoil has been beneficial for gold.[3] But if the Fed sees an additional need for action to combat inflation, Gold is likely to shed some of its latest gains again. In the meantime, buying on dips may be the best approach for this market, as gold remains an attractive haven investment.[4]

The Australian dollar gold price also hit an all-time record of A$2874 per ounce overnight, exceeding the previous high of A$2868 per ounce recorded on 6 August 2020. The record was a result of a high US dollar gold price and a lower Australian dollar exchange rate versus the US dollar.

Ultimately, gold is likely to retain a bullish bias in this environment.[5] Gold could attract haven flows if threats of financial instability lead the Fed to pause its tightening cycle at its March gathering. Any pullback should be short lived, as opportunistic buying should emerge.[6] As the macroeconomic environment improves in the later part of the year, the price is likely to increase.[6] Investors should proceed with caution and have a long-term investment strategy in place.[7]

0. “Gold Price Forecast: XAU/USD looks to take out $1,937 resistance on the renewed upside” FXStreet, 17 Mar. 2023, https://www.fxstreet.com/news/gold-price-forecast-xau-usd-looks-to-take-out-1-937-resistance-on-the-renewed-upside-202303170658

1. “Credit Suisse Jitters: US stocks open lower; Dow down 525 points on renewed bank worries” Economic Times, 15 Mar. 2023, https://economictimes.indiatimes.com/markets/stocks/live-blog/bse-sensex-today-live-nifty-stock-market-updates-15-march-2023/liveblog/98644728.cms

2. “Commerzbank reaffirms its gold forecast, looking for prices to end 2023 at $1950 an ounce” Kitco NEWS, 16 Mar. 2023, https://www.kitco.com/news/2023-03-16/Commerzbank-reaffirms-its-gold-forecast-looking-for-prices-to-end-2023-at-1-950-an-ounce.html

3. “Gold Price Forecast: XAU/USD to sink toward $1,800 in Q2, rising to $1,950 by year-end – Commerzbank” FXStreet, 17 Mar. 2023, https://www.fxstreet.com/news/gold-price-forecast-xau-usd-to-sink-toward-1-800-in-q2-rising-to-1-950-by-year-end-commerzbank-202303171409

4. “Gold’s crisis-driven surge halted by rising U.S. bond yields” CNBC, 14 Mar. 2023, https://www.cnbc.com/2023/03/14/gold-holds-above-1900-as-svb-collapse-fuels-fed-slowdown-hopes.html

5. “Gold Prices Jump as Yields Slump, Sentiment Dismal as Bank Angst Lingers” DailyFX, 17 Mar. 2023, https://www.dailyfx.com/news/xauusd-gold-prices-jump-as-yields-slump-sentiment-dismal-as-bank-angst-lingers-20230317.html

6. “Raising gold forecasts | interest.co.nz” Interest.co.nz, 15 Mar. 2023, https://www.interest.co.nz/personal-finance/120310/anzs-analysts-see-gold-bullish-momentum-after-us-fed-pauses-its-hiking

7. “Gold Forecast: Markets Looks Tired” DailyForex.com, 17 Mar. 2023, https://www.dailyforex.com/forex-technical-analysis/2023/03/gold-forecast-17-march-2023/192950

Forecast Future Price Action
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