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Gold’s price reaches almost record highs


22 March 2023

The high volatility created by the mini-crisis in the banking sector with Credit Suisse being its latest victim tended to have a beneficial effect on gold’s price. The collapse led investors to flee en-masse towards the precious aiding its ascent, at some point above the $2000 key psychological level. In this report, we aim to shed light on the catalysts driving the precious metal’s price, assess its future outlook and conclude with a technical analysis. We make a start with the crash of Credit Suisse. The Swiss bank despite getting CH ₣50 billion helping hand from the Swiss National Bank was not able to survive.  

Over the weekend the Swiss authorities persuaded UBS to pay $3.23 billion for the acquisition of Credit Suisse following its spectacular drop of 26% within 5 days. It should be noted that the Swiss shareholders were favoured over bondholders an unusual first which rose substantial criticism for the actions of the Swiss Government, yet overall the deal seemed to allow for a relative easing of the market’s worries.

On the flip side, following the announcement of the deal President of the ECB Christine Lagarde said “I welcome the swift action and the decisions taken by the Swiss authorities. They are instrumental for restoring orderly market conditions and ensuring financial stability”. Following the historic merger, a shocking joint statement was made by the FED, BoC, BoE, BoJ, SNB and the ECB where it was announced that the swap lines between the Central banks “will allow the central banks of the eurozone, Britain, Japan and Canada to each day offer seven-day dollar loans to their banks.”

Overall the common stance and decisiveness of central banks not to allow another “2008 meltdown” momentum to be created in the banking sector tended to reassure the markets further. Yet there is still a fragile state, where a number of banks are still wobbling, with an example being First Republic bank in the US, yet there are still many more with cumulative assets over a trillion US$.

The wide uncertainty in the US banking sector and the criticism for the Feds’ aggressive rate hiking path and lax supervision, tended to alter the market’s expectations for its interest rate decision tomorrow. After wild swings in the past week, the market’s expectations seem to solidify at a 25 basis points rate hike and its characteristic that currently, Fed Fund Futures imply a probability of almost 83% for such a scenario to materialize. Anything more could provide substantial support for the USD and weaken gold’s price while should the bank remain on hold we may see the USD weakening substantially.

Besides the interest rate decision as such, we also intend to focus on the forward guidance provided in the accompanying statement and should the bank ease its so far aggressive hawkish stance we may see the greenback slipping, thus benefitting gold’s price. Also, we would like to see whether the bank will be issuing additional measures to stabilise the banking sector for example a possible guarantee for depositors.

Furthermore, the new dot plot is to show us whether the Fed’s policymakers are expecting the terminal rate to be higher than in the last one and should that be the case that could be considered an additional bullish sign for the USD and vice versa for gold’s price. Last but not least we note the release of the Fed’s projections for the course of the US economy and should the bank’s view be that a possible recession is to be avoided or even be a shallow one, we may see the USD rising and gold’s price slipping.

Gold’s price seems to be stabilizing after a correction lower from the highs of the 2010 (R1) resistance line. Overall, we tend to maintain a bullish outlook as long as the price action remains above the upward trendline incepted since the 9th of March, yet we note that the upward trendline is now being put to the test by the price action bringing the precious metal to a make or break position.

Also note that the RSI indicator retreated from the highs of the reading of 70 and is currently near 58, allowing for an assumption that the bulls seem to be easing their grip on the market sentiment for Gold’s price.

Should the price action bounce on the upward trendline and breach the resistance line of 2010 (R1) that would allow for gold’s price to peak at a level above it marking a higher peak than the last and allowing the upward motion to continue uninterrupted for now. Next possible stop for the bulls should the R1 be broken could be set at the 2045 (R2) resistance level. On the other hand, should gold’s price stabilisation be maintained we may see it breaking the prementioned upward trendline in a first sign of a changing trend, while should reverse direction and break the 1965 (S1) support line, aiming if not breaking also the 1937 (S2) support level, we may see a downward trendline starting to form allowing for a bearish scenario to emerge.   

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