Gold has taken on the role of a protective asset on the background of problems in the U.S. banking sector. Bullish sentiment in the market emerged after Silicon Valley Bank (SVB), the 16th largest U.S. bank by assets, went bankrupt. Earlier, Silvergate Capital Corp. had also suspended operations.
Analysts say the collapse of SVB could signal the end of the Federal Reserve's monetary tightening cycle. Market expectations for the Fed’s rate hiking have changed dramatically in recent days. The market expects the regulator to start actively lowering the rate starting from this summer. But just last week, the rate lowering was expected to take place only in 2024. Such a change of mood in the market is a definitely positive sign for gold.
The U.S. consumer price index is due to be released today. Particular attention will be paid to the core consumer inflation rate, as it is the indicator the Fed relies on when making its decisions. According to analysts, U.S. consumer prices were likely rising at a solid pace in February on the back of high rental housing prices. Economists have different opinions on whether the data will be enough to push the Fed to raise interest rates again next week after the collapse of two regional banks.
Inflation expectations are quite high. This may remind investors about the sticky inflation and an impossibility for the regulator to bring the key rate to zero right now. Thus, gold is expecting a correction.
As shown by the technical analysis, the gold prices are now forming a tweezer candlestick pattern. A corrective movement is anticipated against the background of the 5.5% growth that has happened over the last three trading days. The nearest Fibonacci level of the last year's entire growth wave at 0.236 may become a correction target. Applying the Fibonacci levels of the growth wave over the recent days to the chart, one can see the two nearest Fibonacci retracement levels of 0.236 and 0.382. The second level (0.382) coincides with the Fibonacci retracement target of the whole growth wave. There is also the basing level of this February’s beginning.
The correction target will be at the level of $1880. A stop loss would be placed at the renewal of yesterday's highs at the level of $1915.
A decline in the price of gold:
Take profit – 1880
Stop-loss – 1915
This content is for informational purposes only and is not intended to be investing advice.