Gold Price Forecast: XAU/USD lingers below $2,000 as the market awaits Fed’s policy decision

• XAU/USD reaches historic levels as investors seek safe-haven assets.
• Gold price surge amid falling US Treasury yields and global banking turmoil.
• Is the end of Fed’s hiking cycle near? Gold prices await a crucial decision.

Gold prices reached a fresh yearly high on Monday this week, with XAU/USD hitting the $2,000 mark for only the third time in recorded history; the last time was during the COVID era.

The robust bull run began from the March low of around $1,800, and gold prices have not looked back since. Gold prices have a strong inverse correlation with US Treasury (UST) bond yields, which experienced a notable decline in March.

The global banking turmoil has forced investors to reconsider their outlook on surging borrowing costs. Amid this uncertainty, investors chose to seek safety in US Treasury bonds, causing yields to fall.

Some speculations suggest we may have seen the peak in US Treasury yields. Two driving forces could be behind this exponential Gold price surge: Gold's role as a safe haven during adversity and falling UST yields.

Despite gold prices hovering around the $2,000 mark, it's too early to claim any top. According to the CME FedWatch tool, markets are pricing in a 26.2% chance that the Fed will stand pat at the end of its March 21-22 meeting, with around a 75% chance of a 25 basis point (bps) hike.

It's doubtful for the Fed to terminate the current hiking cycle with a surprise. However, one should remember that the Fed has made mid-cycle adjustments in the past. Given that most central banks are nearing their peak in the hiking cycle, it's not impossible that the Fed could signal the end of the cycle.

On the other hand, inflation remains above the 2% Fed’s target, so it would be premature for the Fed to pause or end the hiking cycle.

Levels to watch