Gold ripe for technical pullback?

Spot gold has skyrocketed towards its biggest weekly gain since November as contagion fears permeated global financial markets this week.

The Credit Suisse crisis exacerbated the risk-off sentiment stemming from Silicon Valley Bank’s collapse, prompting market participants to rush towards safe haven assets.

The precious metal launched above its 50-day simple moving average (SMA) and is on course towards revisiting its year-to-date high.

However, with gold’s 14-day relative strength index (RSI) teasing its way into “overbought” territory, should the RSI cross above the 70 mark, that may prompt traders into invoking a technical pullback for spot gold.

As long as markets continue doubting the integrity of the global financial system, such concerns should keep the precious metal well bid.

We expect a greater-than-even chance of spot gold staying above the psychologically-important $1900 in the lead up to next week’s FOMC meeting, provided that the US dollar remains subdued and risk-off mode remains in place.

If Fed Chair Jerome Powell can swat away contagion fears at next week’s press conference, while convincing markets that the Fed can press ahead with its aggressive battle against still-stubborn inflation, that may unwind some of gold’s recent gains.

A shift in the current risk-off narrative could see the precious metal testing its 50-day simple moving average for support next week.