Gold Price Forecast: XAU/USD lures bears as Federal Reserve verdict looms, banking fears recede

Gold price (XAU/USD) portrays the pre-event anxiety as it dribbles around $1,942-45 on the key Federal Reserve (Fed) Interest Rate Decision Day.

The precious metal traces the United States Treasury bond yields to portray the latest inaction amid a light calendar and the XAU/USD trader’s lack of attention to the geopolitical headlines surrounding China and Russia. It’s worth noting that the receding fears of banking sector fallout seemed to have favored the US Treasury bond yields while bouncing off a multi-day low the previous day. However, the market’s cautious mood ahead of the Fed’s verdict and the hawkish bets on the interest rate moves from the US central bank appear to rekindle the recession woes and probe the yields, as well as the Gold price of late.

Recovery in yields weighs on Gold price

United States policymakers’ efforts to ward off the banking crisis joined the mixed US data and comments from the Swiss and European decision-makers seem to have underpinned the US Treasury bond yields’ rebound, which in turn probed the Gold price the previous day.

The benchmark US Treasury bond yields struggle to extend a two-day rebound from the lowest levels since September 2022. That said, the US 10-year and two-year Treasury bond yields seesaw around 3.60% and 4.18% respectively by the press time.

US Treasury Secretary Janet Yellen’s comments gained major attention as she said, "Treasury, Fed, FDIC actions reduced risk of further bank failures that would have imposed losses on deposit insurance fund."  Earlier on Tuesday, Bloomberg shared the news stating that the “US officials are studying ways they might temporarily expand Federal Deposit Insurance Corporation (FDIC) coverage to all deposits, a move sought by a coalition of banks arguing that it’s needed to head off a potential financial crisis.”

Not only the US policymakers but ECB policymaker Martins Kazaks and Dr. Marcel Rohner, Switzerland’s Banking Association Chairman also tried to convince the markets that their respective banking system isn’t on the brink of collapse.

As per the latest banking updates, the US policymakers are discussing ways to surpass the US Congress to defend the banks while the First Republic Bank eyes government help to encourage buyers.

Elsewhere, the US Existing Home Sales for February marked a notable jump of 14.5% versus 0.0% expected and -0.7% prior. However, the Philadelphia Fed Non-Manufacturing Business Outlook survey gauge dropped to -12.8 in March and tamed the US Dollar-linked optimism afterward.

Gold price fails to justify geopolitical tension surrounding China

As global traders are more concerned with the banking sector updates and the Federal Reserve (Fed), the headlines surrounding China, one of the biggest Gold consumers, fail to entertain the traders.

Reuters came out with the news suggesting geopolitical challenges to the global economy due to China President Xi Jinping’s visit to Russia, which in turn should have weighed on the XAU/USD price but could not. The news also quotes the joint statement accusing the West by mentioning that the United States was undermining global stability and NATO barging into the Asia-Pacific region.

Federal Reserve action could direct XAU/USD moves

Moving ahead, the UK inflation number and speech from the European Central Bank (ECB) President Christine Lagarde could entertain Gold traders ahead of the key Federal Open Market Committee (FOMC) monetary policy meeting. While the Fed’s 0.25% rate hike is almost given, XAU/USD sellers should eyes for a hawkish developments in the dot plot and comments to push back banking turmoil in Fed Chairman Jerome Powell’s speech.

Also read: Powell to persevere and raise rates, US Dollar set to (temporarily) rise

Gold price technical analysis

Gold price extends a U-turn from a seven-month-old resistance line towards breaking a fortnight-long ascending trend line to lure XAU/USD bears ahead of the all-important Federal Reserve (Fed) monetary policy meeting.

Also making the bearish bias more lucrative is a pullback of the Relative Strength Index (RSI) line, placed at 14.

It should, however, be noted that the Moving Average Convergence and Divergence (MACD) indicator flashes the bullish signals and suggest little room toward the south, which in turn highlights the 50-DMA of around $1,883 as the short-term key support.

In a case where the Gold price breaks the 50-DMA support, the 100-DMA level surrounding $1,830 acts as the last defense of the bulls.

On the flip side, the support-turned-resistance line from March 09 restricts the immediate upside of the XAU/USD to around $1,983.

Following that, the longer-term ascending trend line, close to the $2,000 threshold at the latest, will be in the spotlight.

Should the Gold buyers manage to keep the reins past $2,000, the 61.8% Fibonacci Expansion (FE) of the XAU/USD’s moves between November 2022 and February 2023, around $2,018, may act as an extra filter towards the north.

Overall, Gold price teases sellers but the road towards the north appears bumpy.

Gold price: Daily chart

Trend: Further downside expected