Gold eyes $2K as yields plunge

2023년 3월 17일

• Metal hits new high for 2023
• Falling yields and raised financial stability concerns boost appetite for low- and zero-yielding assets
• Gold under 6% from all-time high

Gold hit fresh record highs in British pounds and Japanese yen terms on Friday. In the standard US dollar terms, the precious metal has risen to a new high for the year above $1960. It was thus $40 shy of reaching the 2K mark and $115 away from reach the all-time peak at $2075 hit in August 2020. To get that additional 6% or so worth of gains, it will probably need another shot in the arm from the Fed next week.

Gold has risen nearly 5% on the week, supported by falling interest rate expectations and heightened uncertainty over the banking system.

Forget rate hikes, at one point on Friday’s session, the odds of Fed July 25 basis point rate CUT climbed to 88%, no less!

Along with gold, we have also seen cryptos making a big comeback this week. It has been a good time for low or zero yielding assets. Cryptos recovered from intense selling pressure last week when Silicon Valley Bank collapsed. This week, troubles for Credit Suisse came to the forefront, leading to a bailout by the Swiss National Bank. We have also seen troubles for a couple of other US banks.

So, gold and crypto prices have been rallying in part because of heightened uncertainty over the traditional banking system.

Meanwhile, China continues to demand more and more gold, suggesting there’s strong physical demand too. Gold withdrawals from the Shanghai Gold Exchange totalled 169 tons in February, up by 30 tons month-on-month and 76 tons year-over-year to represent the strongest February for wholesale gold demand since 2014, according to the World Gold Council. Gold demand has risen because of the economic recovery and the release of pent-up demand in China.

Gold will need to hold above short-term support at $1935 to maintain a bullish technical bias. A daily close above $1960 would be very ideal for the bulls.
For the bears, well, they will need to see a sharp reversal before stepping back in on the short side. So far, we haven’t had any bearish catalysts to trigger a reversal.

The key event next week is the Fed’s meeting. So much has happened in recent weeks that there are many question marks as to whether the Fed will hike rates at all at this meeting. The probability of a 50 basis point which was around 70% just a week ago, sunk to zero. The probability of a no hike rose sharply. It looks like the market has settled for somewhere in between: a 25 bp hike. Indeed, according to a Reuters poll, the majority of the respondents reported that the Fed will raise interest rates by 25 bps in March, not 50 bps as had been priced in just a week ago. Some 76 of the 82 surveyed economists agreed, while 5 said the Fed will pause. The survey also found that 56 of 64 economists surveyed said the Fed will raise rates to at least 5.00-5.25% in Q2, lower than was recently priced. With not much macro data to come until the FOMC meeting, a lot hinges on financial stability of US banks now.

-- Written by Fawad Razaqzada, Market Analyst
Follow Fawad on Twitter @Trader_F_R