Gold Price Forecast: XAU Firm Amid Banking Stress, Debt Worries

Gold (XAU) Highlights

• Gold (XAU) prices rise due to economic concerns and banking sector stresses
• U.S. government’s debt ceiling decision contributes to risk-aversion
• Upcoming economic data, Fed policy decisions to affect gold (XAU) prices

Gold (XAU) Overview

On Thursday, gold (XAU), a safe-haven asset, increased due to renewed economic concerns, and traders waited for U.S. data to get a glimpse of the Federal Reserve’s policy direction.

The persistence of stresses in the banking sector is also underpinning gold prices. Additionally, the decision to raise the U.S. debt ceiling has also contributed to risk-aversion in the market. Although gold briefly surpassed $2,000 amid fresh worries about U.S. banking turmoil, it retreated on Wednesday as yields rebounded, and attention shifted back to upcoming economic data.

At 10:49 GMT, Gold (XAU) is trading $2000.88, up $2.70 or +0.14%. On Wednesday, SPDR Gold Shares ETF (GLD) settled at $184.74, down $1.01 or -0.54%.

First Republic Bank’s Troubles Boost XAU

A report indicates that US government officials have been hesitant to intervene in the troubled lender First Republic Bank’s (FRC.N) rescue process, resulting in a record low for the bank’s shares and giving gold an intraday boost on Wednesday. Prolonged banking stresses may lead to new record highs for the precious metal, as seen in mid-April when bullion reached over a year-long peak of $2,048.71 during the U.S. banking crisis.

While the U.S. House of Representatives passed a bill to increase the government’s debt ceiling on the same day, uncertainties persist, continuing to support gold prices.

Interest Rate Hike Affects XAU

The market anticipates a 25 basis point increase in interest rates by the U.S. central bank during its May 2-3 meeting, with approximately a 75% chance priced in.

However, concerns about the persistence of the regional banking crisis have slightly lowered these odds. While firmer interest rates can negatively impact gold since it is not an interest-bearing asset, there is a potential flip side where higher rates could benefit gold due to the increased possibility of another banking sector crisis.

Economic Indicators to Gold Prices

Investors will closely monitor several economic indicators this week, including the U.S. quarterly GDP figures and weekly jobless claims, followed by the core personal consumption expenditures index on Friday.

The first-quarter gross domestic product data, which indicates the economy’s growth rate, is set to be released on Thursday, following a 2.6% annualized expansion in the fourth quarter of 2022.

Additionally, pending home sales reports and weekly jobless claims are expected on Thursday, preceding the personal consumption price index on Friday.

These data points are likely to influence the Federal Reserve’s policy decisions during its upcoming meeting, where a 25 basis point interest rate hike is anticipated. Investors will also analyze the central bank’s guidance for insights into the duration of the rate hikes and the potential timing of future rate cuts.

Technical Analysis

Looking at the technical picture, the longer-term is trending up, but in the short-term, the trend is neutral. As a result, the price has been hovering around the midpoint of R1 at $2045.30 and the PIVOT at $1927.36, coming in at $1986.33. This suggests that investors are uncertain and anticipating a potential increase in volatility.

To make a significant move, investors are likely waiting for fresh news. Currently, the gold market provides two options for investors: wait for a break below the support PIVOT at $1927.36 or bet on a breakout above R1 at $2045.30.

Support and Resistance Line:

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