Recently, financial markets experienced a sharp rise in volatility. Under these circumstances the interest in gold as a safe-haven asset increased naturally, bringing the yellow metal’s prices back to the level of $2,000 per ounce. Even a stronger dollar did not prevent the rise in gold. If the price manages to consolidate above the level of 2,000, another attempt to update historical highs might be expected soon.
On Tuesday, pessimistic sentiment among traders and investors were driven by the growing banking crisis. After the collapse of SVB and Credit Suisse in March, this topic came second, however, yesterday it was reminded by quarterly reports of First Republic Bank, another U.S. financial institution with a rather vulnerable position.
First Republic Bank reported outflows of more than $70 billion in the last quarter. Putting $30 billion in emergency aid from major U.S. banks aside, the withdrawal exceeded the level of $100 billion. First Republic management announced plans to cut asset size and staff by 20–25% to save money, but that did not save the bank's stock from collapsing by 50%.
Increased gold prices along with the strengthening U.S. dollar point to rising investors’ demand for safe-haven assets. According to senior market analyst at Oanda Edward Moya, the bullish outlook for the yellow metal is based on growing risks, including high inflation, financial instability, economic slowdown, etc. A potential pivot in the U.S. Federal Reserve’s (Fed) monetary policy also supports the main precious metal.
The level of 2,000 is now determinant for the further dynamics of gold prices. In a positive scenario, the next growth target would be 2,015. An option of continued correction would be acute at consolidating below 1,980, but after yesterday’s events the probability of this scenario significantly decreased.
The following trading strategy may be offered:
Buy gold in the range of 1,990–2,000. Take profit – 2,015. Stop loss – 1,980.
Traders may also use the Trailing stop instead of the fixed Stop loss at their discretion.
This content is for informational purposes only and is not intended to be investing advice.
