Gold Corrects Lower After Hitting $2000

Gold Corrects Lower After Hitting $2,000

On Tuesday, gold prices eased after reaching yearly highs in the prior session as investors took some profits off the table before an upcoming Federal Reserve rate decision. Furthermore, worries over a looming banking crisis kept safe haven appeal intact and further bolstered demand for gold.

As lingering global banking fears partially dissipate, US Treasury yields stabilizing and the US Dollar trading near its 5-week low, the demand for the safe haven gold remains solid. Gold is trading at $1,968 trying to hold on its recent upward trend.

The price of gold has broken the $2,000 mark on Monday, for the first time in a year, as investors continue to expand their investments. Despite the initial optimism, wariness ensued as the market geared up for Wednesday’s highly anticipated Federal Reserve meeting.

Gold was recently bolstered by a worldwide banking crisis that began with Silicon Valley collapse and Signature Bank falling apart, followed shortly after by UBS’s takeover of Credit Suisse in Europe.

ANZ Bank said that improved risk appetite should not discourage investors from investing in gold as a valuable asset which remains a safe bet for long-term profitability.

Gold Prices – Further Correction

On Monday, open interest in gold futures markets increased for the third consecutive session, according to data from CME Group, rising by approximately 6.1K contracts while volume decreased by nearly 10.6K contracts, partially offsetting the previous day’s increase.

Despite recent gold pull backs, no extreme drops are expected as the US central bank is widely expected to follow a cautious approach and keep rates relatively low.

Check Gold Outlook 2023: How Far Can Gold Go?

For gold sustainably stabilize at $2,000 or higher, there must be evidence that rates will decrease and the Federal Reserve will allow inflation to stay slightly above target around 2%.

USD Muted as Fed gets in Focus

On Tuesday morning, the U.S. dollar experienced a mild increase in European trading; however, it has been unable to move much beyond its five-week low ahead of the Federal Reserve’s controversial meeting.

The US Dollar Index, measuring the US dollar strength against a basket of six other currencies, was flat near its lowest levels since mid-February. 

Given the recent financial turbulences, it’s anticipated that the Federal Reserve will take a more moderate approach to tightening policy this week.

Economists anticipate the Fed will only raise rates by a relatively modest 25 basis points, with some even believing there may be no rate hike at all.

According to the CME FedWatch Tool, markets anticipate with 83.4% certainty a 0.25% rate hike on Wednesday; however, there remains a 16.6% probability that the Federal Reserve will keep rates unchanged. 

Fed Rate Hike

Expectations of a 25 basis points rate hike are certainly driving the market, but investors will also be keeping an eye out for what the Federal Reserve has to say about its impressive $8.6 trillion balance sheet that is slowly growing once again.

Last week, the dollar was subjected to increased volatility due to questions regarding Federal Reserve policy. Consequently, metal prices were given a much-needed boost while emergency liquidity measures implemented by the Fed weakened some of their tightening efforts in the past year. However, with U.S. inflation holding well above the Fed’s target, the committee may yet raise interest rates further, albeit with slower pace. 

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