Forex world

March 27, 2023

XAU/USD retraces from $2,000 mark

- Gold’s safe-haven demand diminishes as US authorities reassure investors. 

- Federal Reserve’s focus on inflation and confidence in banking system stability.

- Geopolitical tensions and upcoming US PCE data are possible influencing factors for Gold.

The XAU/USD exchange rate experienced a dip from the $2,000 mark as US authorities reassured investors of their strong commitment to addressing any potential issues in the banking sector. This assurance, coupled with a slightly stronger US dollar and a recovery in equity markets, has contributed to the decline in Gold prices. However, the yellow metal is likely to continue receiving support from significant macroeconomic events, such as potential problems in the banking industry.

A recent surge in Deutsche Bank's credit default swaps has caused renewed concern among investors, prompting a shift towards risk aversion on Friday. Although there is no definitive evidence of any substantial issues for Deutsche Bank, concerns about the undercapitalization of US banks could cause Gold prices to rise.

At a policy meeting last week, Federal Reserve (Fed) officials noted that there were no signs of worsening financial stress, allowing them to maintain their focus on reducing inflation through further interest rate increases. As expected, the Fed raised rates by a quarter of a percentage point and hinted at an upcoming pause. Fed voter Kashkari and other officials have expressed confidence in the US banking system's stability and resilience while emphasizing that inflation remains a priority.

In geopolitical news, Russian President Putin announced the placement of tactical nuclear weapons in Belarus, along with the relocation of 10 aircraft capable of carrying such weapons. Putin stated that this move does not violate nuclear non-proliferation agreements and that Russia will station the weapons in Belarus similarly to how the US does in Europe. North Atlantic Treaty Organization (NATO)  and the US have criticized this decision, calling it dangerous and irresponsible, but the US also believes Russia is not preparing to use a nuclear weapon. Further escalation in this situation could boost gold prices as demand for safe-haven. 

Market participants are now looking forward to the release of US Personal Consumer Expenditure (PCE) data on Friday. Core PCE for February is expected to rise by 0.4% MoM, which is a slower pace compared to the 0.6% increase seen in January. The annual core PCE rate is anticipated to moderate to 4.3% YoY, down from 4.7%. This data release may influence gold prices and market sentiment, as investors closely monitor inflation trends and their potential impact on the economy and financial markets.

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