Gold Price Forecast: XAU/USD’s struggle with $1,919 extends amid banking crisis, ahead of ECB decision

Gold price is back in the red zone early Thursday, having witnessed good two-way price action a day before. Gold price is retreating even though the United States Dollar (USD) is fading its recovery, as market nerves seem to be calming after the Credit Suisse crisis that erupted on Wednesday.  

Credit Suisse crisis boosts demand for safe havens

On Wednesday, the market attention suddenly shifted back toward the banking crisis, this time in Europe, as investors fretted whether the US Silicon Valley Bank (SVB) fallout has reached European shores. Saudi National Bank, The largest shareholder of Credit Suisse Group AG, ruled out another call for additional liquidity. Credit Suisse slid as much as 24% to a new record low, as the credit default swaps tied to bonds issued by Credit Suisse soared to record levels.

In light of these developments, a flight to safety took over markets and intensified in no time, bolstering the demand for safe havens such as Gold price, US bonds and the United States Dollar. Meanwhile, US Treasury bond yields were sold off heavily alongside global stocks, as the renewed banking turmoil killed risk appetite. Gold price shot up from daily lows of $1,886 to reach as high as $1,937, its best levels since February 2. The benchmark 10-year US Treasury bond yields to six-week lows of 3.388% while the US Dollar Index jumped nearly 0.90% to briefly regain 105.00 at a point during the day.

Early Thursday, Swiss regulators stepped in to reassure global financial markets and soothed fears, allowing a brief relief rally in the US S&P 500 futures while the Asian indices continued to reel from the Wall Street pain. The US Dollar is consolidating the previous gains while the US Treasury bond yields attempt a tepid rebound. As a result, Gold price is feeling the pull of gravity but the downside appears cushioned amid looming banking sector risks worldwide.  

European Central Bank decision next of note

Gold traders now look forward to the European Central Bank (ECB) monetary policy announcements for fresh trading impetus. Markets are now pricing a 20% probability of a 50 basis points (bps) ECB rate hike on Thursday, compared with a roughly 90% chance of the same a day earlier. If the ECB surprises with a 50 bps hike, then Gold price could see a fresh leg higher, as it would deepen fears over a potential banking rout.

However, a 25 bps rate hike from the ECB could signal that the central bank remains concerned about the tightening financial market conditions, hinting at a likely 25 bps Fed rate hike next week. In either case, Gold price is set to benefit but the extent of gains will be dependent on the US Dollar valuations and the dynamics of the yields.

Gold price technical analysis: Daily chart

Gold price stormed through the February 3 high of $1,919, the critical barrier, but failed to yield a daily closing above the latter.

The 14-day Relative Strength Index (RSI), however, continues to stay bullish above the midline, suggesting that there is more room to the upside.

Daily closing above the $1,919 barrier will initiate a fresh uptrend toward the year-to-date highs of $1,960. The previous day’s high of $1,937 could challenge the bearish commitments, at first.

Alternatively, the immediate downside could be tested at the $1,900 threshold, below which Tuesday’s low at $1,895 could come into the picture. Further south, the previous day’s low at $1,886 will lend some support to Gold buyers.

The last line of defense for them is seen at the mildly bullish 50-Daily Moving Average (DMA) at $1,877.

All in all, Gold price remains a ‘buy the dips’ trade amid looming banking sector risks across the globe.