Gold prices rocketed higher on Thursday in an overall volatile 24 hours, finishing higher by 0.86%. That was the best single-day performance in almost one week. Most of the price action occurred during the Wall Street trading session. There, the Dow Jones, S&P 500 and Nasdaq 100 plunged as the VIX market ‘fear gauge’ soared.
Most of the weariness was driven by concerns about the banking sector. This followed SVB Financial Group trying to shore up capital and Silvergate – a crypto-focused bank – winding down operations.
These events are another sign that historically high interest rates are taking their toll on the economy. It pushes investors away from riskier investments when you can earn a much better return in ‘risk-free’ Treasuries.
Concerns about the banking sector ate away at future Federal Reserve interest rate hike expectations. In fact, markets priced out one full 25-basis point rate hike in one-years’ time. This is what plunged Treasury yields over the past 24 hours. For gold, this is great news. Gold is an anti-fiat instrument. When the expected return on cash could fall in the future, that tends to produce a friendly environment for it.
With that in mind, the next critical piece of economic data is the non-farm payrolls report, due at 13:30 GMT. The US is seen adding 225k jobs in February with the unemployment rate holding steady at 3.4%. A still-solid jobs report could pour cold waters on less-hawkish Fed policy expectations. Such an outcome could result in gold reversing Thursday’s gain.
XAU/USD Daily Chart
Gold prices turned higher just above the February low at 1804. A bearish Death Cross between the 20- and 50-day Simple Moving Averages remain in play, offering a downside technical bias. If prices continue higher, the 50-day line could hold as resistance. Otherwise, clearing lower exposes the midpoint at 1787.