Gold Price Forecast: XAU/USD channeling higher on safe-haven flows, FOMC need major event

Gold price pauses in its uptrend after spiking higher on safe-haven demand, as fears of global banking contagion persist. XAU/USD is trading at $1,971 per Troy Ounce at the time of writing, down 0.3% on the day. The precious metal is in a short-term uptrend, however, with the odds favoring more upside to come.

Gold news: UBS takeover fails to calm markets

A deal to enable rival UBS to take over troubled lender Credit Suisse over the weekend temporarily reassured investors in the early European session and stabilized sentiment but relief was temporary. Fears around wider banking stability continue to propel investors into safe-haven assets. Stage directions: Enter Solid Gold.

The collapse of Credit Suisse and others, such as Silicon Valley Bank (SVB) and First Republic Bank before it, was triggered by a drying up of liquidity. The rise in inflation and interest rates to combat it has led to a fall in the value of the extensive government bond holdings of many banks, reducing the value of their assets. This, combined with a fall in bank deposits, caused a banking liquidity crunch. 

US Federal Reserve Meeting on Wednesday looms

Apart from the banking crisis, the next big event for Gold price is the FOMC meeting on Wednesday March 22 at 18:00 GMT. At the meeting the US Federal Reserve will decide whether or not to increase interest rates. These have a significant impact on Gold price as higher interest rates increase the opportunity cost of holding Gold, which is a non-yielding asset. Thus higher rates or the expectation of them tends to weigh on Gold price. 

The current probababilities favor a 0.25% rate rise by the Fed on Wednesday, according to the CME FedWatch tool, a market gauge of the future Fed Funds rate. CME's tool calculates the chances as 74.5% for a 0.25% rise and 25% for no rate hike at all, but probabilities have yo-yo'd a lot over recent days due to the market turmoil caused by Credit Suisse. Gold traders will be keeping a keen eye on them and the meeting when it starts. 

The Fed is stuck between a rock and a hard place, according to Eren Sengezer, European Seassion Lead Analyst at FXStreet, "The Fed faces a tough balancing act as the negative impact of higher interest rates on the banking sector becomes more apparent by the day. Meanwhile, latest data reaffirmed that labor market conditions remain tight and inflation is still sticky with core services prices holding uncomfortably high."

Gold price technical analysis

Gold price pauses after hitting a new high for the year of $2,009 in the early European session. The yellow metal remains in a short and medium-term uptrend which is expected to resume once the sideways consolidation ends. 

The XAU/USD pair is channeling higher on the 4-hour chart and despite a pullback over the last few bars it is likely to continue. The Relative Strength Index (RSI) momentum indicator is looking like it will exit overbought and if the curent 4-hour bar ends on a bearish note it will confirm a sell signal and the correction will probably continue lower. Support from the base of the channel at roughly $1,950-60, however, is likely to provide a floor for Gold price from where it can regroup and mount a recovery back up inside the channel. The short-term trend remains bullish and only a decisive break and close on a 4-hour timeframe below the lower channel line will turn the picture bearish. 

From a technical perspective, the next upside target is at $2,069 at the March 2022 highs. A sudden reversal and move below $1,887, on the other hand, would bring into doubt the validity of the uptrend and increase the chances a new bear trend might be starting. 

Gold price: 4-hour Chart