XAU/USD strengthened as Fed rate hike concerns caused the dollar to decline

Gold Fundamental Analysis
  • XAU/USD reverses direction, and the bulls may have some persistence for the time being.
  • Gold prices rose significantly from recent losses to reach a one-month high.
  • The SVB fallout reversed the Fed’s hawkish forecasts.

Gold Fundamentals and News

XAU/USD is trading at 1,890.62, up by 1.36% in 24 hours. On Monday, the value of gold reached a one-month high. It is because easing hawkish Fed expectations and market concerns about no Fed rate hikes in March due to the recent US banking crisis appear to be weighing on the dollar and strengthening the gold.

Fed Easing rate hikes speculations

The demise of Silicon Valley Bank is a timely reminder of the rising gaps in the American economy driven by an increase in interest rates.

Worries about the SVB and Singapore Bank defaults grew, but the weekend rescue plan disclosed by US authorities provided some relief to markets. Regulators said on Sunday that they would protect Silicon Valley Bank’s depositors.

The Fed acted swiftly to loosen limitations on bank borrowing. Furthermore, the White House assured the Silicon Valley Bank depositors that it would pay for any withdrawals.

According to the Fed Rate Monitor Tool, more traders now anticipate a 25 basis point increase in interest rates from the Fed this month as opposed to a 50 basis point increase.

Moreover, Goldman Sachs, an influential investment bank, stated that the Federal Reserve would not execute any rate hikes at its March 22 meeting as a result of the financial crisis in the US. It has cut down the Fed’s forecast for rate increases. Meanwhile, JP Morgan forecasted a 25 basis point Fed rate hike in March.

As traders questioned the odds of another rate rise by the Fed later this month, given the continued US banking crisis, the US dollar declined on Monday. DXY is trading lower at 104.01. Moreover, the yield on US 10-Year Treasuries fell by 7.31% to trade at 3.425.

The risk sentiment of gold traders returned as the dollar declined.

US Economic Data

There are no significant US statistics for investors to consider this morning. Therefore, gold traders analyzed Friday’s US Jobs Report because no recent statistics were available.

According to the data, overall nonfarm payroll employment expanded by 311,000 in February, and the unemployment rate marginally climbed to 3.6%, more than the projected 3.4%. Another report indicates that average hourly wages fell by 0.2% compared to the 0.3% market expectation.

The wage growth slowed as more individuals entered the labor force, and the unemployment rate rose. Nonetheless, the US Dollar suffered from repricing because of weaker-than-expected wages. The US Dollar fell on Friday as the labor market data was mixed. It caused the XAU/USD to surge.

Moreover, the softer wage growth data and a surprise spike in US unemployment have reduced expectations of a 50-basis-point Fed rate hike in March.

Looking ahead to Tuesday, traders are awaiting the release of the US consumer price index. The CPI report will provide updated signals on the Federal Reserve’s rate rise decision in March. The gold traders require a decrease in the US Consumer Price Index to reverse aggressive Fed views and boost the gold price surge.

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Ariana Huffington