Gold Price Forecast: XAU/USD climbs back closer to six-week high as Dollar softens on banking crisis fears

Gold price regains some positive traction following the previous day's good two-way price moves and maintains its bid tone through the early European session on Friday. The XAU/USD is currently placed just above the $1,930 level, up over 0.60% for the day, and remains well within the striking distance of a six-week high touched on Wednesday.

Banking crisis woes continue to benefit Gold price

Despite multi-billion-dollar lifelines for troubled banks in the United States (US) and Europe, concerns about widespread contagion continue to drive some haven flows and benefit Gold price. It is worth mentioning that large US banks came to the rescue of troubled First Republic Bank and injected $30 billion into the California, San Francisco-based lender on Thursday. This followed Credit Suisse's announcement that it will exercise an option to borrow up to $54 billion from the Swiss National Bank (SNB) to shore up liquidity. The developments, however, fail to boost investors' confidence or ease fears of a full-blown global banking crisis, which is evident from the prevalent cautious market mood.

Bets for less hawkish Federal Reserve, weaker US Dollar also lend support

Furthermore, last week's collapse of two mid-size US banks - Silicon Valley Bank and Signature Bank - forced traders to scale back expectations of more aggressive interest rate hikes by the Federal Reserve (Fed). In fact, the markets are now pricing in a nearly 90% chance of a smaller 25 bps lift-off at the upcoming Federal Open Market Committee (FOMC) meeting on March 21-22. This, in turn, leads to a modest downtick in the US Treasury bond yields and lends additional support to the non-yielding Gold price. Meanwhile, expectations for a less hawkish Fed prompt fresh selling around the US Dollar, which turns out to be another factor acting as a tailwind for the US Dollar-denominated commodity.

Gold price is poised for the biggest weekly gains since mid-November

The aforementioned supportive fundamental backdrop suggests that the path of least resistance for Gold price is to the upside. Nevertheless, the XAU/USD remains on track to register its biggest weekly gain since mid-November and seems poised to prolong the recent appreciating move witnessed over the past two weeks or so. Market participants now look to the release of the Michigan US Consumer Sentiment Index for some impetus later during the early North American session on Friday. The focus, however, will remain on the two-day FOMC meeting, starting next Tuesday.

Gold price technical outlook

From a technical perspective, any subsequent move beyond the $1,937-$1,938 region, or the weekly swing high, is likely to confront some resistance near the multi-month top, around the $1,959-$1,960 area touched in February. Some follow-through buying will be seen as a fresh trigger for bullish traders and allow Gold price to aim towards reclaiming the $2,000 psychological mark.

On the flip side, immediate support is pegged near the $1,920-$1,918 horizontal zone, ahead of the overnight swing low, around the $1,908-$1,907 region. This is followed by the $1,900 round figure, which if broken might prompt some technical selling and drag the XAU/USD to the $1,886-$1,885 area en route to the $1,872-$1,871 support, or the weekly low set on Monday.

Key levels to watch