Gold Price Forecast: Pullback continues as global banking crisis fears moderate

  • Gold price continues steady pullback as First Citizens Bank is taking over SVB.
  • Relief is tempered by comments from Fed’s Kashkari, suggesting banking crisis could still trigger recession.
  • Gold remains in an uptrend, correction is still too minor to be called a reversal. 

XAU/USD is trading in the lower $1,970s at the start of the week, after pulling back from highs just above $2,000 reached on Friday. Easing bank stress may have lessened Gold’s safe-haven appeal but persistent fears of wider contagion appear to be putting a floor under the precious metal’s price. 

News of Silicon Valley Bank takeover soothes markets

The news that First Citizens Bancshares Inc, the holding company of North-Carolina based First Citizens Bank, has bought defunct lender Silicon Valley Bank (SVB) has brought some temporary relief to markets on Monday, March 27, lessening demand for safe-haven Gold.  

First Citizens has taken over all of SVB’s $119B deposits and loans, and has bought $72B of its assets, at a $16.5B discount, a press release from the FDIC said

The deal limits the damage from SVB’s failure but does not eradicate it: the bank’s collapse is still thought to have cost the FDIC $20B. 

Policymakers voice concerns over banking crisis, recession 

Despite the positive takeover news, Gold price may still be enjoying safe-haven flows as policymakers voice fears regarding more banking contagion triggering a possible recession.

Minneapolis Fed president Neel Kashkari said, “Recent stress in the banking sector and the possibility of a follow-on credit crunch brings the US closer to recession. It definitely brings us closer,” in an interview on the CBS show Face the Nation. 

“What’s unclear for us is how much of these banking stresses are leading to a widespread credit crunch. That credit crunch… would then slow down the economy. This is something we are monitoring very, very closely,” Kashkari added.

Gold price is in an intact uptrend 

Gold price remains in an uptrend on a short to medium-term basis, as it makes higher highs and lows on the daily chart. This, according to the old adage “The trend is your friend until the bend at the end,” favors bullish bets.

Gold price: Daily Chart

The next target for Gold price lies at the $2,070 March 2022 highs. A break and close above the $2,009 highs of March 20 when markets went into panic mode due to Credit Suisse’s failure, however, is a necessary prerequisite for confirming a move higher. 

The Average Directional Index (ADX) indicator, which measures the strength of a trend is giving a 35 reading which suggests the uptrend is robust. 35 is also in a sweet spot – if it was much higher, say above 45, it might indicate a market top, or overbought state. Meanwhile, if ADX was below 20 it might indicate Gold is in a sideways market. 

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