Gold prices witnessed a speculative jump yesterday. It tested six week high and settled with an intraday gain of 2.66%. That was the biggest single day gain after 1 July 2022. Now prices are struggling in between small ranges ahead of US CPI data.
Prices of the yellow metal rallied more than 3.20% in the past five days. As the shutdown of three U.S. banks. Most notably Silicon Valley Bank underscored the growing cracks in the U.S. economy. Caused by a sharp rise in interest rates over the past year.
While the U.S. government intervened to restore faith in the banking system. Bank stocks saw heavy outflows on fears of potential contagion, which fed safe haven demand for gold.
But the prospect of a banking crisis also spurred bets. That the Federal Reserve will be forced into toning down its hawkish stance in order to prevent further economic destruction. This weighed heavily on the dollar and short-term Treasury yields, which in turn greatly benefited gold.
Focus is now on consumer price index inflation data for February, due later in the day. The index is expected to have eased slightly from the prior month, although core inflation is expected to remain the same.
The Fed had warned last week that sticky inflation could spur more aggressive tightening measures by the bank. But in the face of a potential banking crisis, the central bank’s path remains uncertain.
Fed Fund futures prices now show that markets have completely ruled out the possibility of a 50 basis point hike next week, with a majority of traders now expecting the bank to raise rates by a smaller 25 basis points. But a portion of traders also expects the Fed to hold rates at 4.50% to 4.75%.
High interest rates had battered gold through 2022, as rising yields pushed up the cost of holding non-yielding assets. But a reversal, or potential easing in the Fed’s hawkish stance, could benefit the yellow metal.
Technical – GOLD trading at massive resistance
Since 6 March 2023, Gold prices witnessed a speculative jump from the low of 54771 to recent high of 57738. On the daily chart, GOLD future has broken up its previous swing high of 57419 yesterday and managed to trade above it.
Recent day’s price action resulted in formation of three white soldiers candlestick pattern, which is yet indicating a bullish momentum in near future. However, after the recent abrupt rally, prices will expect to show temporary correction before the next upside move.
Hence, fresh bullish momentum expects to come above 57780 for target 58000-58250 with stop loss below 57320. Else, failure of the break will create a probability for temporary correction. And possible pullback could be expected from 57000-56950 cmp 57520.
On the downside, 56580 will act as a crucial support break below only, GOLD prices retreat towards 56200-56050.
Overall sentiment will depend on CPI data and Snaky headlines. Hence trade cautiously.