Gold price drifts lower after making a fresh high at $1,915 for March, with eyes on yields

• Gold price looks comfortable above the $1,900 mark and obeying the yields. 
• SVB fallout and underlying financial dents receding bets for a 50-bps Fed hike.
• Stronger US CPI reading can put Fed into doom and gloom.

XAU/USD took a breather after three days of successive rallies. Gold price is slightly down on the day after hitting a fresh monthly high around the $1,915 mark, amidst falling US Treasury bond yields.

Gold is commonly recognized as an asset that has an inverse correlation with US Treasury (UST) bond yields, but its correlation with real UST bond yields is stronger than with nominal yields.

Emphasizing the inter-market correlation, fallouts of Silicon Valley Bank (SVB), and speculations around the deteriorating US financial system are prompting the market participants to scale out the bets for an aggressive rate-hiking path from Federal Reserve (Fed). UST yields have been gravitating toward the downside upon dwindling bets of a 50 basis point rate hike from the Fed at the March 22 meeting.

Following the fallout of SVB and muted Fed commentary, investors are likely to remain indecisive until the Fed provides more clarity on the spread of the contagion in the US banking sector.

Starting from Monday, many market forecasters have shifted their view on the Fed rate hiking plan and it seems the market is not finding a consensus view for the March FOMC meeting.

One argument favors the Fed’s rate hiking cycles on the urge of “whatever it takes to do” to tame inflation. On the other side, the Fed cannot keep going on when underlying dents from the financial system are cultivating. 

Meanwhile, the US economic calendar features the US Consumer Price Index (CPI) data for February. Attention will focus on the sticky service-led inflationary portion, which has the Fed’s focus.

In general, service-the led inflationary part has irreversibility and most of the developed economies are heavily dependent on the service sector, therefore, the Fed will be in a tricky situation if the inflation reading comes in higher than expected.

Levels to watch