Fed’s Cautious Approach Boosts Gold Prices Amid Market Turmoil

Key Takeaways

• Gold surged over 2% on Friday amidst banking crises and expectations of a less aggressive Fed approach against inflation.
• The failure of Silicon Valley Bank highlighted bank vulnerabilities, contributing to market turmoil and making gold attractive.
• Despite banking turbulence, Reuters poll suggests Fed to raise interest rates on March 22, possibly impacting gold market.

Overview

On Friday, gold prices surged over 2% in response to a series of banking crises that reverberated throughout the global markets.

As a result, bullion posted its most significant weekly gain in three years. Furthermore, expectations are strengthening for a more tempered approach from the Federal Reserve in their efforts to combat inflation.

On Friday, June Comex gold settled at $1990.20, up $50.50 or +2.54%. The SPDR Gold Shares ETF (GLD) is at $183.74, up $5.17 or +2.90%.

Gold Prices Rise Amid Banking Concerns and Fed Rate Hike Pause Expectations

Gold prices are on the rise due to concerns about potential bad banking news over the weekend, along with expectations that the Federal Reserve may pause its rate hikes next week.

The recent failure of Silicon Valley Bank in the United States has highlighted the vulnerability of banks to sharply higher rates, while the market downturn in Credit Suisse shares has contributed to overall market turmoil. Experts expect investors to turn to gold as a safe haven amid this instability.

Gold Attractive as Dollar and Stock Markets Decline Amid Banking Sector Crisis

As the dollar and stock markets decline during the current banking sector crisis, gold is becoming a more appealing investment option. Rising interest rates increase the opportunity cost of holding gold, despite its reputation as a hedge against economic uncertainty. Nevertheless, the current economic climate has made it an attractive investment given the market turmoil.

This decision is expected to affect the gold market, as higher interest rates typically make gold a less attractive investment option.

However, given the ongoing market concerns about further banking crises, it remains to be seen how this will impact the gold market.

Technically Speaking…

We’re in a momentum driven market so support and resistance is not that important at current price level.

Should the upside momentum continue on Monday the look for an early surge into the April 18, 2022 main top at $2045.80. This top corresponded with the start of the Fed’s rate hiking campaign. The next main top at $2097.20 was also influenced by the first rate hike.

The contract high at $2141.00 was a COVID-related main top.

Pullback, or corrections are likely to become buying opportunities until the banking crisis comes to an end. From the reports coming in over the weekend, it looks as if the crisis is worsening ahead of Wednesday’s Fed interest rate announcement.