Investors are no longer as worried about the U.S. banking crisis, and expect the Federal Reserve to keep inflation in check. This has led investors who had been buying gold to sell off their holdings.
Gold prices have fallen from their recent high of $2,000 per ounce, as the Federal Reserve has indicated that it will remain committed to fighting inflation. Gold prices have declined over the past two days, with April gold futures falling to $1,941.10 an ounce. This represents a drop of $51 from the previous day, and $75 from Monday’s one-year high of $2,014.90.
The spot price of gold is closely followed by some traders and was at $1,940.10 by 16:07 ET (20:07 GMT) on Monday, down $38.85, or 1.96%, from the one-year high of $2,010.19.
Gold prices surged last week as investors grew worried that the financial crisis in Europe could spread to the rest of the world. Those concerns eased somewhat Monday after Swiss investment bank UBS said it would buy struggling rival Credit Suisse. In the United States, JPMorgan Chase appeared to make progress in its effort to rescue First Republic Bank after the federal government took over two regional banks last week.
Gold investors had initially expected the current momentum to rewrite the $2,078.80 record high for futures and the all-time peak of $2,072.90 for spot gold.
The recent market slide has shown that gold may need to build more strength at lows in order to make another strong push forward, said Sunil Kumar Dixit, chief technical strategist at SKCharting.com.
Dixit stated that if prices remain below $1,968-$1,978, we can expect further correction towards the support areas of $1,932-$1,928. The only way to put gold back on the bullish path of resuming the uptrend is to break and sustain above $1,968-$1,978, which would target $2,010 initially, followed by $2,040 and $2,056.
The Fed’s actions over the next 24 hours will also test the strength of gold bulls.
Investors in a variety of markets will be very carefully analyzing Jerome Powell’s remarks after the Federal Reserve’s interest rate announcement on Wednesday. They will be looking for clues about inflation, the U.S. economy and the Fed’s future plans for interest rates.
The Federal Reserve is expected to approve another 25-basis point hike at its March 22 meeting, bringing U.S. interest rates to a peak of 5%, and advocate further increases that will help it reach its inflation target.
The Federal Reserve intends to return inflation to its long-term target of 2% per annum and has said that it will primarily rely on interest rate hikes to accomplish this. Over the last year, the Fed has raised rates by 450 basis points.
The banking crisis is causing some hesitation on the part of the Federal Reserve about continuing to increase interest rates, as many on Wall Street are blaming the central bank’s rate hikes for the current crisis in the banking sector rather than the reckless behavior of the executives of the banks that went under. There is pressure now on the Fed to hold off from any more rate hikes. So far, Chairman Powell has shown no signs of caving to such emotional blackmail.
However, the current circumstance is more unique, as the Fed has both a stubborn inflation problem and financial market instability to deal with.