Gold Broke $2000 While Markets Focused on Fed Emergency Meeting

On Sunday evening, the US Central Bank and Federal Reserve conducted an emergency meeting behind closed doors. Limited information has been provided so far, but the President of the Fed, Jerome Powells, will be under the spotlight at Wednesday’s press conference. Retail and commercial banks continued under pressure after 3 banks collapsed and many others tapped into emergency funds. 

Investor’s confidence has now significantly declined after the Fed and other global central banks held emergency meetings last night. Reports indicate that the Fed’s meeting was largely related to ensuring the Dollar remains readily available to the banking sector after signs of “strain”. As a result, all global equities are in the red. Asian indices declined by an average of 1.56%, European Indices by 1.25%, and US Indices by 1.02%.

However, not all assets are in the red! Safe haven assets again are performing exceptionally well, including the US Dollar and Gold. This morning the price of Gold is up 1.30% and is forming its fourth consecutive day of bullish price movements. The price of Gold also hit a 54-week high. 

Gold - Markets Focused on the Fed’s Emergency Meeting

The price of Gold increased by 3.55% and 1.30% during this morning’s Asian session. The price of Gold against the US Dollar has increased in value for 5 consecutive hours. As mentioned last week, traders should also note that Gold and the Dollar’s inverse correlation has significantly weakened. This week the price of the Dollar and Gold are both seeing an increase in demand. The main price driver relates to the instrument’s status as a safe haven asset. 

Investors have been driven to safe haven assets for many reasons related to lower investor confidence and a risk-off appetite. The most recent influence was last night’s emergency Federal Reserve meeting. It has also been confirmed that the Fed has boosted Dollar funding to 5 global central banks through swap lines. The Fed officials claim that the Fed took such a decision to ease liquidity strain. 

The Fed’s website has confirmed the 5 Central Banks include the Bank of Canada, the Bank of England, the Bank of Japan, the Swiss National Bank, and the ECB. The “swap lines” refer to a process where the Fed allows foreign banks to access the Dollar to make loans. This has put the spotlight back on the banking sector, liquidity, and the safety of deposits. As a result, investors turn to Gold, a safer storer of capital and a hedge against inflation.

Gold/US Dollar 1-Hour Chart on March 20th 

The price of Gold has been supported by the rise in Treasuries and the poor performance of corporate bonds and equities. As mentioned above, all global equities are down, but a bigger concern is that Credit Suisse confirmed their AT1 Bonds would be written down to Zero last night. Here is also a good example of how fear has made many investors turn to Gold. 

When looking at the price of Gold, in terms of technical analysis, we can see that all indicators are more or less pointing toward a bullish trend. The only concern for investors is that the price is extremely high, which may potentially trigger a selloff in the near future. However, this is unlikely, as investors need more trust in the banking sector. The price is not yet overbought on the Relative Strength Index but is signaling divergence, which may be considered a bearish signal. 

EUR/USD

The EUR/USD experienced positive price action last week after the ECB’s rate decision. However, the Dollar’s safe haven status and further swap lines have made the direction less certain. The US Dollar Index this morning is slightly higher than the open market price trading at 103.80, which is 0.14% higher. However, the Index is extremely volatile, showing price movements in both directions. 

EUR/USD 30-Minute Chart on March 20th

When looking at technical analysis and the US Dollar Index, we can see that the price movement so far mainly favors the Dollar. Though investors should note the price has still not formed a lower swing low or lower swing high. Therefore the price is still technically in a bullish trend. Currently, the RSI is providing the strongest bearish signal, with the price dropping below 50.00 and showing a clear sign of divergence. 

The Euro has been influenced by the Central Bank’s bullish decision to increase interest rates by 50 basis points. In addition to this, the decision-makers are trying to remain hawkish despite the current banking sector issues. Over the weekend, two board members, governor Peter Kazimir and Gediminas Simkus called for interest rates to continue rising, noting that the fight against inflation in the Eurozone is not yet over. 

Investors will now focus largely on the exchange rate’s price action and Wednesday’s rate decision. Most economists believe the Fed will choose to raise rates by 0.25%, taking the Fund Rate to 5%. However, the Chairmen’s press conference will be equally as important.

Summary:

• Gold increases above $2,000 for the first time in 54 weeks as 5 central banks seek Fed assistance. 
• The US Dollar experiences high volatility in both directions but remains higher this morning. 
• The Fed has boosted US Dollar funding to 5 global central banks through swap lines. The Fed officials claim that the Fed took such a decision to ease liquidity strain. 
• All global indices decline as investor confidence declines, and Fed expects increasing rates.