This Week: Can gold revisit $2070 amid global banking woes?

Gold has broken above the psychologically-important $2k for the first time since March 2022 (following Russia’s invasion of Ukraine)!

And gold could stay supported this week, as major central banks hold their respective policy meetings amid the market tumult and banking crisis engulfing both sides of the Atlantic.

Here are the scheduled economic data and events that could move markets this week:

Monday, March 20

• CNH: China loan prime rates
• EUR: ECB President Christine Lagarde speech

 

Tuesday, March 21

• AUD: RBA meeting minutes release
• EUR: Germany March ZEW survey expectations
• CAD: Canada February consumer price index (CPI)

 

Wednesday, March 22

• NZD: New Zealand 1Q consumer confidence
• GBP: UK February CPI
• USD: Fed rate decision

 

Thursday, March 23

• CHF: Swiss National Bank rate decision
• NOK: Norges Bank rate decision
• GBP: Bank of England rate decision
• USD: US weekly jobless claims

 

Friday, March 24

• JPY: Japan February CPI
• EUR: Eurozone January manufacturing and services PMIs
• GBP: UK February retail sales; March PMIs, consumer confidence

 

 

It’s another tough call for central bank decision-makers as solid macro-economic data like hot inflation and decent jobs growth calls for more rate hikes and policy tightening.

Here’s what markets are expecting out of these 3 central bank meetings this week:

• Federal Reserve: 42% chance of 25-basis point hike
   
• Bank of England: 54% chance of a 25-basis point hike
   
• Swiss National Bank: Most economists still predict a 50-basis point hike by the SNB (though such forecasts occurred prior to the weekend’s UBS takeover of Credit Suisse).

 

But the ongoing fallout from the collapse of Silicon Valley Bank and concerns around Credit Suisse mean uncertainty is high and financial conditions are tightening.

By that we mean there will be far greater caution by banks regarding who they lend to, how much they lend and at what rate. This is de-facto tightening of monetary and financial conditions as it will weigh on activity and have a lasting effect of contracting the economy.

In effect, it does the central bank’s job for it.

 

The risk-off environment has been to the benefit of safe haven assets such as the Japanese Yen and Gold (barring the Swiss Franc and the US dollar, which are struggling in light of their respective turmoils).

However, note that the precious metal has reached its most overbought conditions since March 2022, with its 14-day relative strength index being well above the 70 threshold.

Such levels suggest that gold may struggle to hold on to such lofty heights, and could see a technical pullback over the near future.

Note how gains very quickly unravelled following its previous two breaches of the $2k mark:

• August 2020: $2074.87 (current record high)
• March 2022: $2070.59

 

Still, as long as risk-off mode continues to dominate market sentiment, that could embolden gold bulls to revisit the $2070 peak between now and the eventual technical pullback.