Gold Price Forecast: Pullback from yearly highs continues as Credit Suisse rescue soothes markets

• Gold price continues retreating from year-to-date highs.
• Markets settle as banking crisis fears fade following Credit Suisse rescue.
• US Dollar rebounds in run up to Federal Reserve meeting on Wednesday.

Gold price pulls back from its yearly high as global banking jitters pass (for now) and US Treasury yields find a floor, supporting a stronger US Dollar. The precious metal trades at $1,972 at the time of writing as it continues to consolidate within a technical uptrend. 

Gold news: Safe-haven flows ease on banking rescue

The dust settles after the latest casualty of the current neo-financial crisis, Credit Suisse, was swallowed up by rival UBS on Monday, and Gold – the safe-haven par excellence – loses the upside momentum that propelled it to YTD highs above $2,000. 

In the United States, treasury staff are looking at ways for regulators to insure more than the current Federal Deposit Insurance Cap (FDIC) of $250,000 for bank deposits, to increase confidence in the banking system, according to a report by Bloomberg News on Monday. This provides further evidence to reassure investors that authorities are willing to step in to save the day.

US Dollar rallies before FOMC

The US Dollar is on the rise, reflected in the 0.20% gain seen in the US Dollar Index on the day, which tracks the world’s reserve currency against a basket of counterparts. Since Gold is priced in US Dollars, it tends to have an inverse relationship – when the Dollar strengthens it takes less of them to buy the same quantity of Gold, all other things being equal. 

The next big event for both Gold and the US Dollar is the FOMC meeting on Wednesday, March 22 at 18:00 GMT, at which the US Federal Reserve will make its next monetary policy decision. The odds currently favor a more-modest-than-was-previously-expected 0.25% increase in interest rates. 

If the Fed decides to go big with a 0.50% rate hike, however, it will boost the Dollar and push down Gold price – no cut at all will have the opposite effect.

Making the decision a little more complicated this time, however, is the recent banking crisis which was triggered in part by rising interest rates. Whilst the Fed wants to battle inflation, it must now also take into consideration the impact of higher interest rates on financial stability.

Another factor to consider is what the board of governors expects the terminal rate to be, which is reflected in the dot plot, within its Summary of Economic Projections. As Eren Sengezer, European Session Lead Analyst at FXStreet, points out in his Fed meeting preview, a modest hike accompanied by signs rates might be peaking soon could still be interpreted as dovish. 

“In case the Fed raises the policy rate by 25 basis points but the dot plot shows at least one rate cut before the end of the year, that could also be assessed as a dovish shift in the policy outlook,” says Sengezer. 

Gold price technical analysis: Pullback within an uptrend

From a technical perspective Gold price remains in an uptrend both on the short and medium timeframe. It was ascending in a steep channel but now appears to be pulling back down after peaking on Monday. 

The Average Directional Indicator (ADX) on the 4-hour chart is at 55, which is a very high reading. ADX measures how strongly an asset’s price is trending and when it reaches above 50 it is often a sign the trend is close to exhaustion. Given the high reading was accompanied by a two bar reversal pattern from Monday’s highs and a steady decay since, it may be a sign Gold price could pull back further, probably to the base of the channel in the $1,960 region. 

Overall the trend is bullish, however, suggesting that once it has finished its correction it will probably continue rising. It could require a decisive break and close below the lower channel line to indicate a deeper correction or reversal of the uptrend was taking place.

Gold price: 4-hour Chart