Gold Price Forecast: XAU/USD rises on Credit Suisse risk aversion and falling US yields.

• Gold price rises on risk appetite due to Credit Suisse crisis.
• Investors are wondering if the Federal Reserve can keep raising interest rates to curb inflation.
• On a weekly basis, a continuation in the price of Gold opens the risk of a move to test 2012.50 as the -272% Fibonacci.

Gold price rallied from a low of $1,885.79 to a high of $1,937.39 on the day, but has been under some selling pressure in recent trade. The price of gold has fallen back to trading around $1,916 at the time of writing, reflecting market volatility as a result of Credit Suisse risk.

Credit Suisse is in crisis

Bank shares, already reeling from two big bank failures last week, came under pressure on Wednesday from Credit Suisse’s sharp fall. The Swiss lender’s shares fell more than 20% after the chairman of its biggest backer, the Swiss National Bank, said he would not provide any more financial support. On Tuesday, the entity announced that it had found “material weaknesses” in its financial reporting process from previous years.

As reported by The Guardian, “the bank is in the midst of a major restructuring plan aimed at curbing its losses of 7.3 billion Swiss francs (6.6 billion pounds sterling) in 2022 and restarting its operations, weighed down by multiple scandals in the last decade related to alleged misconduct, breach of sanctions, money laundering and tax evasion”.

In short, there is a loss of confidence in the Banks and this is causing additional fears of contagion in the field of world banking, which is benefiting the price of Gold due to the reduction in risk, as well as lower expectations of tightening of the central banks.

Reduced expectations of interest rate hikes by the Federal Reserve

As late as last week, markets were bracing for the return of the Fed’s big rate hikes. However, concerns about the banking sector have caused US bond yields to fall sharply as investors they wonder if the Federal Reserve and other central banks can keep raising interest rates to curb inflation.

Yields on two-year Treasuries, which move in step with interest rate expectations, have plunged 98 basis points in the past five days, the biggest drop since the week of Black Monday on October 19, 1987. On Wednesday they fell from 4.413% to 3.72%. Markets are now pricing a 25 basis point Fed hike next week at 80% and no change at 50%. Elsewhere, December Fed funds futures, which reflect the overnight rate banks use to lend to each other, have fallen to 3.62%, in a sign the market expects the Fed to Federal will cut interest rates at the end of the year, if not before.

Gold Price Shines on Falling US Treasury Yields

As a result of the turbulence, the price of gold is recovering and has rallied in four of the last five trading sessions. Last year, rising interest rates made it more attractive to hold government bonds than gold, since the latter does not pay any regular income. However, a jolt of uncertainty among investors is causing the yields paid on government bonds to plunge. As a consequence, the yield curve has further narrowed its inversion, with the gap between the 2-year and 10-year yields narrowing to -28.60 basis points and the narrowest spread since October.

Gold Price Technical Analysis

From a daily perspective, momentum is with gold price bulls and a bullish close on Wednesday opens up prospects for a move to test the 2023 highs near $1,960.

On a weekly basis, the price of Gold has recovered from support and a 78.6% Fibonacci correction. A continuation in the gold price opens the risk of a move to test $2,012.0 as the -272% Fibonacci.