Gold tests $2,000 as focus turns to FOMC Gold tests $2,000 as focus turns to FOMC Gold tests $2,000 as focus turns to FOMC

Gold tests $2,000 as focus turns to FOMC

Ole Hansen

Head of Commodity Strategy

Summary:  Gold briefly traded above $2000 at the start of the European trading session, after the market responded with caution instead of relief to the high drama that unfolded in Switzerland over the weekend. The short-term direction of precious metals will, besides further developments on the banking and liquidity front, be dictated by Wednesday’s FOMC meeting, the outcome of which is turning out to be most unpredictable in years


Today's Saxo Market Call podcast
Global Market Quick Take: Europe


 

Gold briefly traded above $2000 at the start of the European trading session, after the market responded with caution instead of relief to the high drama that unfolded in Switzerland over the weekend. The Swiss National bank trying to avoid contagion from a worsening liquidity crisis at Credit Suisse, arranged what can best be described as a shotgun wedding that sees UBS take over Credit Suisse with several liquidities guarantees and a massive eyebrow-raising wipe-out of Credit Suisse’s Tier1 debt. 

The fact that shareholders got spared and Common Equity Tier 1 (CET1) being rated above Additional Tier 1 capital (AT1) has put a $275 billion bond market in focus, potentially sending this funding market for banks into a tailspin. “The Swiss have killed this key corner of funding for lenders” a UK bank CEO told Bloomberg, and it is this focus that instead of supporting the European market opening, has kept in a nervous state about what may happen next. Adding to the confusion but also reducing some of the stress about the AT1 market was a statement from European regulators reiterating that CET1 will take losses before AT1 debt

Source: Saxo

The statement helped reduce some of the liquidity-driven worries and after hitting a fresh one-year high at $2010 gold has since retraced lower to around $1980. Gold priced in other currencies raced higher as well with XAUAUD hitting a record while XAUEUR came within 1% of reaching a new high. Gold and silver ended up 6.5% and 10% last week, and together with Bitcoin they are currently being seen as safe havens and a gauge for the underlying market risk sentiment.

Heading into the latest crisis, precious metals were under owned by traders and investors who had been heavy sellers during the February correction. ETF holdings in gold jumped the most in a year last week but at 2871 tons it remains almost 450 tons below the 2022 peak while speculators in futures cut their net long positions by 78% during a five-week period to March 7. 

The short-term direction of precious metals will, besides further developments on the banking and liquidity front, be dictated by Wednesday’s FOMC meeting, the outcome of which is turning out to be the most unpredictable in years. In less than two weeks, the market has gone from pricing four rate hikes to zero and with the swap market pricing in a cut of around 130 basis point during the next twelve months. Any further escalations before then could even trigger a surprise cut, an outcome the very front end of the yield curve is pricing with three-month money currently trading 70 basis points richer than two-years, down from 90 basis point earlier in the session.

 

We maintain a bullish outlook for gold, especially if the FOMC, driven by the current banking and liquidity crisis, is forced to change its focus away from fighting inflation to maintaining stability. Peak rates have on three previous occasions during the past 20 years triggered a prolonged period of gold strength and given the current situation a repeat cannot be ruled out. The current level of uncertainty, however, has increased volatility, and in the short term, the combination of Fridays near 40-dollar rally and today’s rejection above $2000 may trigger some profit taking, but in our opinion not a change in direction. 

Short-term Gold seems overbought, and a correction if gathering pace could see it target $1931, the 0.382 Fibo retracement of the latest run up since March 8. Overall, gold is in an uptrend short- and medium-term and could test all-time highs around $2,074 

Source: Saxo
Disclaimer

The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-hk/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo holds a Type 1 Regulated Activity (Dealing in Securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged Foreign Exchange Trading); Type 4 Regulated Activity (Advising on Securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-hk/about-us/awards.

The information or the products and services referred to on this site may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and services offered on this website are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc. Android is a trademark of Google Inc.