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The month of March has been a great one for gold so far. The precious metal was up around 9% on the month at the time of writing on Friday afternoon. Several factors have helped to propel gold to the $2K mark. The key question is, can XAU/USD get to a new all-time high?

Gold climbs to $2000

Precious metals have been supported by three major factors: 1) falling bond yields, 2) weakening US dollar, and 3) safe-haven demand and 

Before we discuss these macro factors, let’s have a quick look at the XAUUSD chart first:

(Click on image to enlarge)

Gold Spot to US Dollar rate by TradingView

The XAU/USD bulls need the metal to close above the $2K mark to set the stage for a breakout above the previous all-time high hit of $2075, hit at the height of the pandemic in 2020.

While the trend is clearly bullish, the metal may be a little overbought in the short-term outlook. A consolidation near the $2K mark would be the best scenario for the bulls now. If seen, this will work off the technical overbought conditions through time (than price). That, in turn, will encourage fresh technical buying to lift prices to a new high. But given the strong bullish momentum, a continuation higher without a pullback would not come as surprise to me either. 

Why has gold been rising?

As mentioned, gold has been supported by falling bond yields, weakening US dollar and safe-haven demand (as well as strong physical demand from China).

Falling bond yields 

Well, in short, the market is betting that we have reached a peak in terms of rate hikes and that from here looser monetary policy should follow. 

The Fed, SNB and BoE all hiked interest rates this week. The key takeaway point from these central banks was the same: more increases may be required, not will be, if inflationary pressures persist. 

With investors starting to price in interest rate cuts for later in the year or start of next year, this has weighed heavily on bond yields, which, in turn, has helped to underpin non-interest-bearing assets like gold and silver, as well as cryptocurrencies. 

Safe haven demand

Precious metals have also been rallying because of heightened uncertainty over the traditional banking system over the past couple of weeks or so. Due to their perceived safe haven status, investors have been piling into the metals and away from banking stocks. These concerns intensified on Friday. Investors sold shares of Deutsche Bank, causing the German lender’s shares to sink more than 10% as credit default swaps spiked. ECB’s Nagel said he won’t comment when asked about the bank’s tumbling shares. Meanwhile, shares in UBS fell 8% as Switzerland’s biggest bank fails to calm investor concerns over its acquisition of Credit Suisse. UBS’s bond prices have dropped in recent days, while credit ratings companies have lowered their outlook on the bank’s debt.

Weaker US dollar

Whether gold can continue its uptrend will depend to some degree on the direction of the US dollar. The greenback continued to drop for most of the week, before rebounding on Thursday and Friday amid haven flows as concerns over the banking crisis intensified, which weighed on the likes of the EUR/USD and GBP/USD. This, therefore, lifted the US Dollar Index (DXY) to test THIS key resistance area:

(Click on image to enlarge)

US Dollar Index Chart by TradingView

Still, gold remained supported as the short-end of the yield curve remained under pressure, with US 2-year yields dropping below 3.60% by Friday. That was until the PMI data was released, which came in a bit stronger, and pushed gold about $10 off its earlier highs. This meant that gold still couldn’t go above $2000 decisively.

Final words on gold

But regardless of the short-term direction of gold prices, the path of least resistance remains to the upside for gold, both from technical and fundamental viewpoints. As such, I expect the precious metal to find support on the dips and break to a new all time high in the not-too-distant future.

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