Gold prices rose strongly on Friday, supported by the weakening dollar. The yellow metal is poised for its biggest weekly gain since mid-November as a global banking crisis prompted investors to flock to the safe-haven metal. Analysts interpret the market and share their forecasts.
“Banking crisis looks supportive for gold prices”
Spot gold was up 1.5% at $1,948.75 at the time of writing. Gold is up nearly 4.3% this week and is heading for its third consecutive weekly gain. U.S. gold futures rose 1.56% to $1,953.
Gold prices rose more than 5%, or nearly $100, on safe-haven demand after the US-based Silicon Valley Bank collapsed last week. Major US banks injected $30 billion in deposits into First Republic Bank on Thursday to bail out a lender caught in an expanding banking crisis. This comes after Swiss lender Credit Suisse announced it would borrow up to $54 billion from the Swiss National Bank to support liquidity.
Ilya Spivak, head of global macro at Tastylive, says the banking crisis appears to be supportive of gold. He notes that this leads to the general belief that central banks may take a step back (in interest rate increases) due to market risk and credit stress.
“Gold tends to retest support at $1,917”
Cryptokoin.com’ As you can see from the ECB, the European Central Bank (ECB) increased interest rates by 50 basis points (bps) on Thursday as concerns over high inflation outstripped fears of the banking crisis. It is seen that US central bankers put pressure on their disinflation campaigns with a 25 basis point rate hike at their March policy meeting.
When interest rates are raised to reduce inflation, the opportunity cost of holding non-yielding bullion rises. Meanwhile, the dollar index (DXY) fell, making gold more attractive to buyers holding other currencies. Reuters technical analyst Wang Tao says that gold tends to retest the $1,917 support and a break below it could open up to the $1,905-1,917 range.
“The safe harbor demand for gold continues”
The ECB raised interest rates by 50 basis points on Thursday, ignoring financial market chaos and calls from investors to withdraw policy tightening, at least until markets stabilize. Kitco Metals senior analyst Jim Wycoff comments:
The ECB surprised the market with an increase of 50 basis points (bp). It’s a little troubling, because banks are in trouble because interest rates are rising so fast. With the growing concern in the market regarding this banking crisis, we see that the safe harbor demand for gold continues.
“The short-term outlook for gold prices is bullish, but…”
While markets largely expect the US central bank to raise interest rates by 25 basis points, investors’ focus will now shift to next week’s Federal Reserve policy meeting. Losses in the broader financial markets helped gold more as stocks, bonds and the dollar fell. Meanwhile, the number of Americans filing new applications for unemployment benefits fell more than expected last week. This indicates that the strength of the labor market continues.
Daniel Pavilonis, senior market strategist at RJO Futures, says the short-term outlook for gold is bullish. However, he notes that if the Fed decides to raise interest rates by 50 basis points next week, it will put pressure on bullion.