Gold price posted an unexpected weekly increase in potential contagion risks from the Silicon Valley Bank (SVB) meltdown.
Gold sees safe-haven flows
The precious metal once again became a safe trade as investors flocked to it after Friday’s SVB crash. California banking regulators acted quickly to close SVB Financial Group, the biggest bank failure since the financial crisis. According to analysts, the SVB was one of the leading tech financiers, and its failure illustrates the potential unintended consequences of the Federal Reserve’s aggressive marching cycle in its fight against inflation. The possibility that the startup-focused lender’s problems could fluctuate in the rest of the global markets is causing fear.
“Gold is seeing safe-haven flows in these financial instability concerns,” said Edward Moya, senior market analyst at OANDA. Startups and debt refinancing are some of the biggest financial risks traders analyze,” he comments.
Gold rises as safe-haven purchases trigger
cryptocoin.com As you follow from , there has been a dramatic turnaround for gold. Earlier this week, the precious metal was falling steadily with the prospect that the Fed will raise interest rates by 50 basis points at its March meeting. Gold is now rallying and reacting to a number of factors, including the risk to the SVB and financial stability, the rising unemployment rate since February, and a reversal of 50bp expectations. Moya comments:
The NFP report made a strong headline, but the rest of the report supported the idea that the labor market is poised to cool. Wage pressures came in much softer than forecast and the unemployment rate rose from 3.4% to 3.6%. Gold rises as Fed rate hike bets shrink and SVB contagion risks spur safe-haven purchases. The bond market is now starting to price rate cuts by the end of the year, triggering a massive collapse in yields.
The US dollar index (DXY) fell and the two-year yield posted its biggest two-day drop since 2008, supporting higher gold prices. “Gold is again becoming everyone’s favorite trade, and that may continue as liquidity risk concerns will not be answered quickly for that corner of Wall Street,” Moya says.
“I wouldn’t be surprised if the price of gold gets stuck in this range!”
One thing to keep in mind is how sustainable this move in gold is, according to Gainesville Coins precious metals expert Everett Millman. In this context, Millman shares the following comment:
This is generally a short-term response. You see the safe harbor demand coming and going in harmony. There is fear about the stability of banking systems and the dollar has fallen sharply today. This pushes gold higher in the short term.
Especially in the light of Tuesday’s inflation report, we can only understand whether gold can hold at these levels next week. “I don’t think gold has bottomed yet and prices could drop further in the first half of this year,” Millman said. “I wouldn’t be surprised if I see gold stuck between $1,800 and $1,900,” he says. Millman states that trade is very volatile, and as the inflation report approaches, the most important thing to consider is how the markets will react to the data. Accordingly, the analyst makes the following statement:
The CPI data itself is not as important as the response to it. There has often been some disagreement over whether certain data or comments from the Fed are doves or hawks. The Fed will also watch how markets react to and digest the CPI.
Gold price levels to watch
According to Frank Cholly, senior market strategist at RJO Futures, this flight to safety has pushed gold to levels where traders are more bullish. Cholly said, “I’m watching $1,875-1,880. We may have some difficulty in getting to this level, which is the 50-day moving average. The 200-day moving average was held for gold and $1,800 was a good value,” he says.
Moya remains bullish on gold as the economy will likely enter a more challenging period sooner. But he predicts the precious metal will settle at current levels first. Accordingly, he makes the following predictions:
I’m currently considering $1,865. The macro backdrop has changed. Near resistance is at $1,880. And then all eyes will be on the $1,900. If we get a cooler inflation report next week and ongoing financial instability concerns are still lingering, we could have a good old-fashioned gold rally with upwards of $50-$70 daily.
Weekly gold price technical analysis
Technical analyst Christopher Lewis takes a technical photo of gold this week. Gold markets initially fell throughout the week to reach the 50-Week EMA, but bounced back and showed signs of life again. Ultimately, this is a market that I think will eventually try to rise, perhaps reaching the $1,900 level. What is noteworthy is that the $1,900 level at least includes a few upside hammers on the daily charts. I think this will be a difficult area to overcome. If it does, however, it opens the way for the possibility of reaching the $1,975 level.
Alternatively, if it bounces back and falls below the bottom of the candlestick for the week, it opens the door for a drop to the $1,800 level initially, then the $1,750 level currently determined by 61.8% Fibonacci. The 200-Week EMA is trying to reach this area, so I think if there is a sell-off, it will eventually be the ‘market floor’.
Based on the weekly candlestick, I think we are likely to go higher in the short term, maybe next week or 2 weeks. Be very careful with the US dollar as it has a negative correlation, but more so with the interest rate markets. Because the higher the interest rates, the more likely we are to see gold fall, and of course vice versa. All things being equal, this market seems to be trying to rise after receiving the Nonfarm Payrolls announcement that sent gold much higher in the Friday session.
Next week’s data to watch
- Tuesday:US CPI
- Wednesday:US retail sales, US PPI, NY Empire State manufacturing index
- Thursday:ECB rate decision, US jobless claims, building permits and housing starts, Philadelphia Fed manufacturing index
- Friday:US industrial production, Michigan consumer sentiment
