- Gold price firmer on risk-off sentiment due to the Credit Suisse crisis.
- Investors question whether the Federal Reserve can keep hiking interest rates to curb inflation.
- On a weekly basis, a continuation in the Gold price opens the risk of a move to test $2,012.50 as the -272% Fibonacci.
Gold price soared from a low of $1,885.79 to a high of $1,937.39 on the day but has come under some selling pressure in recent trade. Gold price has fallen back to trade around $1,916 at the time of writing, reflecting the volatility in the market as a consequence of the Credit Suisse risk.
Credit Suisse is in crisis
Bank stocks, already reeling from two large bank failures in the past week, were under pressure on Wednesday as the sharp drop of Credit Suisse. Shares of the Swiss lender fell more than 20% after the chairman of its biggest backer — the Saudi National Bank — said it won’t provide further financial support. On Tuesday, the institution announced that it had found “material weakness” in its financial reporting process from prior years.
The Guardian reports,´´the bank is in the process of a major restructuring plan, meant to stem major losses, which ballooned to 7.3bn Swiss francs (£6.6bn) in 2022, and revive operations hampered by multiple scandals over the past decade involving alleged misconduct, sanctions busting, money laundering and tax evasion.´´
Long story short, there is a loss of confidence in the bank and this is leading to additional fears of contagion in the global banking arena which is benefitting the Gold price on derisking as well as dialed-back expectations for central bank tightening.
Federal Reserve rate hike expectations dialed back
As recently as last week, markets were getting set for the return of large Fed interest rate rises. However, concerns about the banking sector have triggered a sharp decline US bond yields as investors questioned if the Federal Reserve and other central banks can keep hiking interest rates to curb inflation.
Two-year Treasury notes, which move in step with interest rate expectations, have tumbled 98 basis points in the last five days, the biggest drop since the week of Black Monday on Oct. 19, 1987. On Wednesday, they have fallen from 4.413% to pay as low as 3.72%. Markets are now pricing in an 80% chance of a 25 basis point Federal Reserve hike next week and are pricing in a 50% chance of no change. Moreover, the December Fed funds futures, which reflect the overnight rate that banks use to lend to each other has dropped to 3.62% in a sign market expect the Federal Reserve to be cutting interest rates by year's end, if not before.
Gold price shines on falling US Treasury yields
Consequently to the turmoil, the Gold price is recovering and has rallied in four of the past five trading sessions. Last year, higher interest rates made it more appealing to hold government bonds over gold, since the latter doesn't pay any regular income. However, a jolt of uncertainty among investors is seeing the yields paid on government debt tanking. The yield curve, as a result, narrowed its inversion further, with the gap between two-year and 10-year yields contracting to -28.60 bps and the tightest spread since October.
Gold price technical analysis
From a daily perspective, the momentum is with the Gold price bulls and a bullish close on Wednesday opens prospects of a move to test the 2023 highs near $1,960.
On a weekly basis, the Gold price has recovered from support and a 78.6% Fibonacci correction. A continuation in the Gold price opens the risk of a move to test $2,012.50 as the -272% Fibonacci.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.