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Gold continues to act as a defensive asset

20 March 2023 170
Gold continues to act as a defensive asset

Gold continues to rise amid falling banking sector. The metal acts as a defensive asset because regulators are forced to save the economy through liquidity injections. In case of the economy's worsening, investors are expecting the rollback of the central bank's monetary tightening program.

 

According to some analysts, the metal may pass the $2,000 level this week awaiting the U.S. Federal Reserve's meeting on March 22. It is expected that the rate will be raised by 0.25%. However, investors are more interested in whether this will be followed by a pause in monetary policy tightening or even a rate decrease.

According to Bart Melek, head of commodity strategy at TD Securities, after the central bank's short-term decision, further rate hikes will be unlikely.

Analysts' expectations for gold remain positive.

 

Commodity markets have reacted modestly to the intervention into the banking sector by the authorities. As a result of the Swiss authorities actions, UBS Group AG agreed to buy Credit Suisse Group AG, and central banks took the course to increase the liquidity of the U.S. dollar. As the confidence crisis threatened of spreading to all financial markets, the Swiss government negotiated a deal between UBS and Credit Suisse over the weekend.

Such a hasty deal is positive for the market on the one hand, because the risks of financial problems were quickly eliminated. On the other hand, this may indicate big problems in the banking sector, which are not known. Increased uncertainty adds to the demand for gold.

 

According to the technical analysis, the price of gold broke up through the previous local maximum. Now the growth target becomes absolutely obvious — it is to reach the round level of 2000 dollars and the testing of the historical highs near the level of 2080 dollars. By plotting the Fibonacci levels of the last gold correction, a short-term upside target of 1.618 can be seen. It is located close to the historical highs.

So, the growth target is the level of 2070 dollars. Stop-loss can be set at a move below the "bullish" Mariboza candle on the daily timeframe near the $1,920 level.

 

Rise in the price for gold:

Take profit – 2070

Stop-loss – 1920

This content is for informational purposes only and is not intended to be investing advice.

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