Gold Price Forecast: XAU/USD pulls back before challenging $2,000, Fed in focus

• Gold price retreats from 11-month highs as the US Dollar finds its feet.
• US Treasury yields rebound as risk flows return on UBS-Credit Suisse deal.
• Gold price is gathering strength for a sustained break above $2,000.
• All eyes remain on the US Federal Reserve policy decisions and banking sector news.

Gold price is reversing a part of Friday’s staggering rally on Monday, pulling away from fresh 11-month highs reached at $1,991 in early trades. The United States Dollar (USD) is attempting to find its feet at the start of the week, as markets still remain anxious ahead of Wednesday’s all-important US Federal Reserve (Fed) policy announcement.

United States Dollar rebounds as fears persist over banking crisis  

The US Dollar is making minor recovery attempts at the start of the week after witnessing a steep drop on Friday, checking the Gold price upside. The US Dollar is seeing renewed safe-haven flows, as investors still fear a global banking crisis even after a weekend rescue deal for Swiss lender Credit Suisse. Markets also remain anxious heading toward Wednesday’s Federal Reserve interest rate decision. Initially, the US Dollar extended the previous losses but recovered ground, thereafter

Risk flows returned in early dealings on Monday after Swiss authorities persuaded UBS Group AG on Sunday to buy the troubled Credit Suisse Group AG in a historic deal aimed at stemming risk contagion. Further, a coordinated effort by major global central banks to ramp up liquidity, by increasing the frequency of seven-day dollar-swap operations from weekly to daily, also boosted the appetite for risk assets. Meanwhile, the People’s Bank of China’s (PBOC) 25-basis points (bps) reserve requirement ratio (RRR) cut on Friday added to the risk-on market profile.

All eyes are on the Federal Reserve rate decision

Markets are pricing a 62% probability of a 25 bps rate hike by the Federal Reserve this week vs. expectations of a 50 bps increment before the banking crisis hit the fan. Markets are reluctant to place any fresh bets on the Gold price, as they are eager to see if the recent tumult in global markets will convince the Federal Reserve policymakers to hold their horses on interest rates beyond March.

Investors are worried that the continuation of the Fed’s tightening cycle could very well throw the United States economy into recession. The rebound in the US Treasury bond yields could be seen on the back of the pre-Fed repositioning, keeping Gold bulls on thin ice.

In absence of top-tier US economic data later in the day, risk sentiment and the dynamics of the US Dollar and the US Treasury bond yields will drive thE Gold price action.

Gold price technical analysis: Daily chart

In light of Friday’s over 3.50% upsurge, Gold price entered the overbought territory on the daily Relative Strength Index (RSI), triggering a corrective decline at the time of writing.

The immediate support for Gold price is now seen at the February high of $1,960, below which the psychological $1,950 level will be put to test.

On the flip side, Gold buyers need to take out the multi-month high at $1,991 in order to aim for the $2,000 threshold. Acceptance above the latter is critical to resuming the recent uptrend toward the $2,050 static support.