Short-Term Outlook for Gold Prices Remains Uncertain Ahead of Fed Meeting

Key Takeways

• US CPI rose 0.4% in February, giving traders pause on a 25-basis point rate hike at Fed’s March meeting.
• Gold surges as SVB Financial and Signature Bank collapse raises concerns of contagion in banking sector.
• Rally in gold driven by safe-haven buying and prospects of less-hawkish Fed interest rate policy.

Overview

Gold futures are lower but steady on Tuesday after consumer prices in the world’s largest economy rose in line with expectations, bolstering bets of a smaller interest rate hike by the Federal Reserve at its next meeting.

Data showed that U.S. Consumer Price Index (CPI) rose 0.4% in February versus 0.5% a month ago, while on a yearly basis, it rose 6.0% last month compared with 6.4% the previous month.

The news prompted traders to hold their bets on a 25-basis point rate hike at the Fed’s March 21-22 meeting, with the odds of a pause in hikes slipping a bit to 15%.

At 13:31 GMT, April Comex Gold is trading at $1910.90, down $5.60 or -0.29% and XAU/USD Gold is at $1903.15, down $9.04 or -0.47%. The SPDR Gold Shares ETF (GLD) is at $177.02, down $0.84 or -0.47%.

Fear Drives Gold Prices Sharply Higher

Gold has surged in the past few session following the collapse of SVB Financial and peer Signature Bank and fears of contagion in the banking sector.

Bullish gold traders are hoping that the threat of a financial crisis will force the U.S. Federal Reserve to ease up on monetary tightening.

Short-Term Outlook

The rally in gold was partly safe-haven buying and partly a reaction to the prospects of a less-hawkish or dovish shift in Fed interest rate policy. Prices may have gone too far too fast and could be due for a setback. It all depends on the magnitude of the bank crisis and what the Fed is going to do with rates at next week’s meeting.

The best case scenario for gold bulls will be contagion or another bank being shut down. If the crisis subside, gains are likely to be capped and gold prices will settle into a range that reflects a new terminal rate for the Fed.

Daily April Comex Gold Technical Analysis

The main trend is up according to the daily swing chart. A trade through $1919.50 will signal a resumption of the uptrend. A move through $1813.40 will change the main trend to down.

The main range is $1975.20 to $1810.80. The market is currently testing its retracement zone at $1893.00 to $1912.40.

Gold is also trading on the strong side of a long-term retracement zone at $1889.50 to $1843.40, making it support.

The minor range is $1813.40 to $1919.50. Its retracement zone at $1866.50 to $1853.90 is another potential downside target.

Daily April Comex Gold Technical Forecast

Trader reaction to $1912.40 is likely to determine the direction of the April Comex gold futures contract on Tuesday.

Bearish Scenario

A sustained move under $1912.40 will indicate the presence of sellers. This could trigger a quick break into $1889.50. If the selling is strong enough to take out this level then look for the selling to possibly extend into $1866.50 – $1853.90 over the near-term.

Bullish Scenario

A sustained move over $1912.40 will signal the presence of buyers. If this move generates enough upside momentum then look for the rally to resume. The daily chart indicates there is plenty of room to the upside with $1975.20 a potential target.