Gold Price Forecast: XAU/USD has more room to the upside on acceptance above $2,000

Gold price is treading water below the $2,000 level early Tuesday, having witnessed good two-way price movements a day before. Investors stay cheerful amid some encouraging banking sector news from the United States while awaiting the critical US Federal Reserve policy outcome on Wednesday.

Eyes on Federal Reserve and banking crisis

Gold price is finding some support, despite a pause in the United States Dollar (USD) decline, as risk sentiment remains in a sweeter spot following a Bloomberg report that “US officials are studying ways they might temporarily expand Federal Deposit Insurance Corporation (FDIC) coverage to all deposits, a move sought by a coalition of banks arguing that it’s needed to head off a potential financial crisis.”

Meanwhile, heightened expectations that the Federal Reserve could refrain from hiking rate this Wednesday, in the face of the banking sector crisis, could strengthen the market optimism. Should the risk rally pick up steam, the US Dollar could likely resume its downside, reinforcing bullish trades for Gold price above the $2,000 level. At the moment, markets are wagering 30% odds of a Fed rate hike pause this month, as per the CME Group’s FedWatch tool. Meanwhile, bets for small Fed rate cuts by the end of this year have also ramped up, threatening any recovery in the US Dollar.  

Markets also refrain from placing any directional bets on the Gold price, as a two-day Federal Reserve meeting kick-off on Tuesday, awaiting Wednesday’s critical policy decision. In the meantime, investors stay vigilant, with regard to the global banking sector developments and ahead of the United States Existing Home Sales data.

US Treasury bond yields rebound trigger Gold price pullback

On Monday, Gold price set off the week on a solid footing and reached the highest level in a year at $2,010. However, the Gold price action was quite choppy amid increased uncertainty surrounding global banking sector and the Federal Reserve policy announcements. Initially, Gold price pulled back amid an improved market mood after UBS was pursuaded to buy out the troubled lender, Credit Suisse. However, Federal Reserve concerns and persistent banking fears revived the safe-haven demand for the US Dollar.

Risk aversion, however, fuelled flows into the US government bonds and smashed the US Treasury bond yields across the curve, eventually dragging the US Dollar southwards. Gold price, therefore, attempted another run higher and broke above the $2,000 mark. Later in American trading, talks around a potential Fed pause gathered steam and lifted risk sentiment, helping the US Treasury bond yields to stage a sharp recovery at the expense of the Gold price.

Gold price technical analysis: Daily chart

Gold price surged past the crucial $2,000 threshold on Monday but failed to seek a daily candlestick closing above the latter.

The 14-day Relative Strength Index (RSI) is holding within the overbought territory, warranting caution for Gold bulls.

That said, acceptance above the $2,000 mark is critical to sustaining the recent bullish momentum.

The next upside target for Gold buyers is seen at the yearly high of $2,010. Further up, all eyes will be on the 2022 top of $2,071 and the all-time high at $2,075.

On the flip side, the retracement in the Gold price could find buyers initially at the $1,970 round figure, below which the previous day’s low at $1,966 will be tested.

Gold sellers will then challenge the February high at $1,960, which could be a tough nut to crack.