The turmoil caused by the liquidity crisis in the banking sector has helped gold surge from a low $1,813 to a high of $2,031 over the past tow weeks. Moving forward, the banking crisis is likely to keep the volatility in the equity markets elevated which should continue to be a tail wind for bullion.

While gold is likely to encounter an initial resistance around its March 2022 high of $2,078, if financial stability concerns continue, the price of the precious metal could challenge its previous high and potentially post a new record high.

Clearly gold is becoming the favourite asset class on the market as investors remain nervous about how quickly authorities would be able to contain further banking turmoil. Also, a weaker U.S. dollar through 2023 is likely to provide further support for gold.

The U.S. dollar is trading in a downward trajectory since September 2022 and while the Federal Reserve could raise interest rates by another 25-basis point, this is unlikely to reverse the greenback’s down trend.

The rising interest rates and the U.S. dollar strength were the main headwind for gold throughout 2022. As the Federal Reserve is approaching the end of its monetary tightening cycle and the U.S. dollar has peaked, a potential final rate hike is unlikely to have a material effect on the price of the yellow metal. However, market volatility and uncertainty, and an upcoming rate cut are likely to continue to attract investors to gold.

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