Gold price starts the week on the wrong foot as markets settle down

• Gold price extends retracement, bulls still in command.
• Quiet start to the week helps improving market mood.
• Federal Reserve speakers and Core PCE data headline the economic docket for the week.

Gold price is trading right below $1,950 at the time of the writing, as the bright metal extends the retracement triggered after topping at the $2,000 round resistance in the latter stages of last week. XAU/USD bulls still are in the driver’s seat, as Gold keeps making higher highs and higher lows.

Gold pauses rally as market mood improves

After a couple of turbulent and hectic weeks of trading, the start of the last week of March seems a bit quieter. Banking fears have receded somewhat, as the Federal Deposit Insurance Corp (FDIC) announced over the weekend that First Citizens BancShares Inc bought all the loans and deposits from the bankrupt Silicon Valley Bank. Monday trading has started with a positive market mood, and capital inflows to safe-haven assets like Gold have calmed down.

This week's highlights in the economic calendar await on Friday, with Chinese PMIs and US Personal Consumption Expenditures (PCE) Price Index data being the two heaviest hitters. Gold price traders should closely monitor both releases. China is the biggest Gold market in the world and any developments in their economy are huge for precious metals demand. On the United States front, inflation figures remain at the top of the Federal Reserve officials’ minds, and US PCE numbers are their preferred inflation indicators. 

Eren Sengezer, Senior Analyst at FXStreet, explains that Federal Open Market Committee (FOMC) member speeches should also be tracked by Gold traders, as the blackout period ended after last week’s meeting and any insights from the future monetary policy intentions of the Fed is huge to shape the expectations of the market:

Investors will pay close attention to comments from Fed officials now that the blackout period is over. Furthermore, Friday’s panic mode in markets showed that investors remain on the lookout for signs of stress in the banking sector. Hence, Gold price could benefit from another slide in global yields.

Market analysts split on Gold bullish trend scenario

Gold appetite from investors looking for a safe place to allocate capital during the recent banking crisis has been well-documented. TD Securities strategists analysts foresee a continuation of this trend and a rise past the thick $2,000 resistance:

With credit conditions tightening as the result of various bank sector difficulties, the Fed, and even more so money managers, have judged that the Fed funds will not need to increase as much as previously thought.” 

“In order for the yellow metal to keep sustained new highs above $2,000, money managers will need to see the Fed show willingness to cut rates even if inflation remains far off the two percent target.

TD Securities economists also add that the recent bright metal rally has not been led by a whole lot of new buying activity, but rather by short covering:

“In Comex Gold markets, the crisis catalyzed some discretionary short covering, but much of the increase in long positioning has been associated with CTA buying activity. Even so, marginal liquidations from this cohort are unlikely to occur above the $1,955 mark, whereas additional buying activity could be catalyzed just north of the $2,000 range.”

One key factor in this Gold price surge is the rise in uncertainty over future market conditions. Markets hate uncertainty. Andrey Goilov, Financial Analyst at RoboForex and an FXStreet contributor, explains this dynamic:

At the end of last week, the European banking sector came under pressure again, which caused an increase in anxiety in stock markets around the world. The concern was caused by the decline in the shares of the largest European bank Deutsche Bank.

Against the backdrop of this uncertainty, gold is again becoming a "safe haven" for the capital market, which makes it one of the most demanding investment assets in the face of economic uncertainty.

On the other hand, the substantial rise seen in Gold price in recent weeks has been exacerbated in one of the biggest precious metal markets in the world, India, which might cap the immediate upside to precious metals price. The weakening of the Indian Rupee is fueling a surge of Gold to an all-time high for Indian investors, reaching a record 60,455 rupees per 10 grams last week, according to Bloomberg.

These record high prices add to other domestic demand headwinds in the Asian giant, as people await "for the monsoons and the fourth quarter festivals like Divali to buy more Gold", according to PR Somasundaram, regional chief executive at the World Gold Council, also quoted by Bloomberg. Somasundaram adds, in the same interview, that the smuggling market is growing "due to a high import tax which puts the cash market at a discount."

Gold price develops bull flag pattern amidst bullish moving average cross

On the technical front, Gold price remains notably bullish despite the recent retracement. XAU/USD is nearing the 23.6% Fibonacci retracement level from the March 8-17 rally. According to Dhwani Mehta, Senior Analyst at FXStreet, Gold is developing a bull flag pattern and a bullish cross in its main moving averages, both clear signs of more upward trading action being developed:

Amidst the Bull Flag formation in play, Gold price continued to find support above the 23.6% Fibonacci Retracement (Fibo) level of the March advance, pegged at $1,963.

The 14-day Relative Strength Index (RSI) holds bullish while the 21-Daily Moving Average (DMA) pierced through the mildly firm 50 DMA for the upside on a daily closing basis, confirming a Bull Cross.

These favorable technical indicators continue to add credence to the bullish potential in the Gold price.

Gold price daily chart by Dhwani Mehta, Senior Analyst at FXStreet