Gold ended the previous week with a strong growth of 2.2%, and today the rise continues. At this rate, in the coming days the main precious metal will be testing the round number of 1900, above which the price hasn’t risen since the beginning of February. Last week's news has definitely increased the macroeconomic risks and brought back the demand for safe haven assets, including gold.
Initially, the release of the US labor market statistics for February was considered the most important event at the end of last week. The data turned out to be ambiguous: the number of new jobs created was higher than expected (311,000 vs. 205,000), but the unemployment rate rose from 3.4% to 3.6%. Although there have been signs that the labor market is cooling down, this statistics alone clearly hasn’t been enough to cause the largest daily rebound in gold prices since 10th November last year.
The situation around Silicon Valley Bank (SVB) has had a much bigger impact on the financial markets. It was declared bankrupt on Friday, becoming the biggest bankruptcy in the US financial market since the 2008 crisis. US regulators were forced to take immediate action to prevent a ripple effect and panic among other banks' customers. The Fed launched an emergency facility, allowing banks to lend money against high-quality assets for a period of one year.
Loss of confidence in the banking system has immediately triggered a surge in demand for gold. In addition, market participants no longer expect the Fed to increase interest rates by more than 0.25% on March 22, while Goldman Sachs representatives believe that the US regulator won't change rates at all until the banking industry is back to normal. As a result, the Fed's slowdown in pace of rate hiking also works in gold's favor.
Given that the gold price was driven by the mentioned impulses, now it's a good idea to wait for a pullback till about 1855-1865 and go long within this range.
Consider the following trading strategy option:
Buy gold in the 1855-1865 range. Take profit – 1900. Stop loss – 1840.
This content is for informational purposes only and is not intended to be investing advice.