Gold Price Forecast: XAU/USD is in pressure mode as markets reassess banking crisis, inflation woes

Gold price (XAU/USD) stays defensive around $1,972, after snapping a two-day losing streak the previous day, as bulls seek more clues amid a cautious mood ahead of the top-tier data. Also challenging the XAU/USD price could be the mixed concerns about the market’s recent optimism that the banking turmoil is over. Furthermore, the month-end positioning and a light calendar are extra catalysts that restrict the Gold price moves of late. However, the economic line is about to be populated and hence can offer an active session to the commodity traders moving forward.

Gold price grinds between banking and inflation concerns

Gold price bounced off short-term key support as the US Dollar failed to cheer a rebound in the United States Treasury bond yields amid mixed sentiment and mostly upbeat US data. The reason could be linked to the market’s month-end positioning, as well as recent challenges to the market sentiment emanating from banking headlines.

That said, the United States Conference Board (CB) Consumer Confidence rose to 104.2 in March, versus 101.0 expected and an upwardly revised prior figure of 103.4. Further, US Housing Price Index rose 0.2% MoM in January versus -0.6% expected and -0.1% prior while the S&P/Case-Shiller Home Price Indices matched 2.5% YoY forecasts for the said month compared to 4.5% previous readings.

On the other hand, Wall Street closed with mild losses and the US Treasury bond yields managed to recover but the US Dollar Index (DXY) failed to improve as hawkish Fed bets eased. That said, CME’s FedWatch Tool suggests market players placing near 65% bets on another 0.25% rate hike for May 03 meeting.

It should be noted that the US Dollar couldn’t cheer mixed US data and the market’s indecision about the banking crisis. That said, markets initially cheered the First Citizens BancShares' agreement to buy all of the failed lender Silicon Valley Bank's deposits and loans before highlighting the European Union and the United States policymaker's efforts to defend their respective banking sector.

However, the much-debated $5.4 million Credit Default Swap (CDS) trade of Deutsche Bank weighs on the sentiment of late and allow the Gold buyers to take a breather. Furthermore, US House Speaker Kevin McCarthy said in an interview with CNBC on Tuesday that there was no need for blanket insurance on all bank deposits "at this moment in time," as reported by Reuters. On the same line, Jose Manuel Campa, Chairman of the European Banking Authority (EBA), warned in the German Handelsblatt newspaper, "The risks in the financial system remain very high." The policymaker also added that the rising interest rates continued to weigh on financial markets.

Geopolitical fears also weigh on XAU/USD

Apart from Gold the traders’ indecision, and geopolitical fears surrounding China, Russia and North Korea also weigh on the XAU/USD price. That said, the Sino-American tussles appear grim of late while US President Joe Biden’s concerns about Russia’s shifting of nuclear weapons to Belarus and North Korean Leader Kim Jong Un’s lauding of readiness to use nuclear powers raise the market’s fears of deadly war in case if theses catalysts move forward. The same could join the month-end positioning and a light calendar to challenge the Gold buyers.

Market’s anxiety restricts Gold price moves

Although multiple hurdles keep challenging the Gold buyers, apart from the US Dollar weakness, the lack of data and cautious mood ahead of this week’s top-tier inflation data from Germany, Europe and the US prod the XAU/USD traders. Adding strength to the market’s indecision could be the recent jump in the US inflation expectations, as per the 10-year and 5-year breakeven inflation rates from the St. Louis Federal Reserve (FRED). That said the 10-year and 5-year breakeven inflation rates from the St. Louis Federal Reserve (FRED) recently flashed a three-day and two-day winning streak respectively while posting the 2.31% and 2.34% level in that order. With this, the inflation precursors rose to the highest levels in a fortnight.

To sum up, the Gold price remains indecisive despite the latest rebound and hence traders should wait for clear directions before taking any major positions.

Gold price technical analysis

Gold price reverses its pullback from a multi-month-old ascending resistance line while bouncing off the 10-DMA. However, the receding strength of the bullish signals on the Moving Average Convergence and Divergence (MACD) indicator tests the Gold buyers. Furthermore, a downside break of the Relative Strength Index (RSI) line, placed at 14, adds strength to the seller’s hopes of witnessing further declines in the XAU/USD.

That said, the 10-DMA level surrounding $1,960 joins the early February tops surrounding $1,955 to restrict short-term XAU/USD downside.

It’s worth noting, however, that a clear break of the $1,955 support could quickly drag the Gold price toward the $1,900 threshold.

Alternatively, the stated resistance line from early August 2022, around a $2,000 psychological magnet, precedes the Year-To-Date (YTD) high of near $2,010 to act as the last defense of the Gold bears, a break of which could propel XAU/USD toward the previous yearly top of $2,070.

Gold price: Daily chart

Trend: Further weakness expected