Gold at the 5,000 mark faces a major test amid bullish and bearish battles ahead of the Federal Reserve’s decision.
During the U.S. trading session on Tuesday (March 17), the international gold market exhibited a pattern of high-level fluctuations with a stalemate between buyers and sellers. The London gold spot price was reported at $5,005.45 per ounce, down 0.14% for the day, repeatedly testing the psychological threshold of $5,000 per ounce, supported by geopolitical safe-haven buying; New York gold futures simultaneously traded in a narrow range around $5,007 per ounce.
Recently, after gold prices reached an all-time high of $5,222.51 per ounce on March 10, they quickly retreated, hitting a low of $4,966 per ounce on March 13, with a cumulative weekly decline of about 2%. Market divergence at historical highs has intensified, leading to fierce competition between bulls and bears.
Fundamental Analysis
The Federal Reserve’s monetary policy and the U.S. dollar-U.S. Treasury bond dynamics are central to current market focus ahead of the Fed’s March meeting (March 18). CME interest rate futures indicate a 99.4% probability that the Fed will maintain its interest rate at 3.50%-3.75%, with attention shifting to the dot plot and policy statements. Rising oil prices driven by Middle East conflicts and renewed inflation concerns have led markets to push back expectations for the first rate cut from June to September, reducing the anticipated total cuts this year from 75 basis points to 25 basis points, reinforcing expectations for prolonged higher rates.
The U.S. Dollar Index (DXY) strongly rebounded to near 100.39, reaching a 10-month high; the yield on the 2-year U.S. Treasury note broke through a downward trend, increasing the cost of holding gold and directly pressuring gold priced in dollars. Mainstream media noted that the traditional inverse relationship between the dollar and gold has strengthened, with short-term dollar strength posing a significant headwind for gold prices.
Geopolitical tensions and crude oil inflation continued to escalate in the Middle East. On Tuesday, Israel claimed to have assassinated Ali Larijani, secretary of Iran’s Supreme National Security Council, while Iran’s new supreme leader rejected de-escalation proposals, further raising risks of a blockade in the Strait of Hormuz. Brent crude oil stabilized above $106 per barrel, with a monthly increase exceeding 40%. Surging energy prices fueled inflation expectations, prompting fears that a resurgence in inflation would force the Federal Reserve to maintain high interest rates, further limiting the potential for a gold price rebound.
On the other hand, inflation concerns triggered by rising oil prices and geopolitical risk sentiment provided gold with anti-inflationary and safe-haven support, creating a tug-of-war between bulls and bears. Jim Wyckoff, senior analyst at Kitco Metals, stated that the gold market reflects a ‘balance’ between heightened demand for safe-haven assets due to geopolitical uncertainty and downward pressure caused by inflation.
Crowded Depreciation Trades and Central Bank Gold Purchases
Daniel Ghali, senior commodity strategist at TD Securities, warned that depreciation trades have become overcrowded, and gold is no longer a peripheral asset for institutional investors. Holdings of the most popular physically-backed gold ETFs now account for approximately 67% of the historical peak. Meanwhile, money supply growth has normalized, and interest rate markets expect a prolonged pause. Concerns about the Federal Reserve’s independence are easing, making gold vulnerable despite continued but slowing central bank demand.
Global central banks continue their net gold purchasing trend, but official sector buying activity has declined over the past year. The Middle East conflict is expected to further reduce official sector purchases, linked to the economic impact of the war on Gulf nations.
Mainstream Perspective
TD Securities: Depreciation trading is crowded, US Treasury yields break through the downward trend, gold faces five major risks, and geopolitical conflicts may further weaken central banks’ demand for gold purchases.
Kitco Metals: Gold is in a balancing state between safe-haven demand and inflationary pressure, with insufficient momentum for the bulls, making it difficult to reach new highs in the short term.
Commerzbank: The Fed meeting is unlikely to boost gold prices; uncertainty over the duration of the war and potential oil supply disruptions may keep the Fed cautious.
Technical Analysis
(Spot Gold Daily Chart Source: Easy Forex)
The current technical picture for London spot gold shows characteristics of weak volatility and strong support. On the daily chart, the gold price has fallen below the 5-day moving average, MACD forms a death cross, RSI retreats to the neutral zone, and short-term bears dominate.
Key support levels: $5,000 (psychological level + dense trading zone), $4,950 (previous consolidation platform); Key resistance levels: $5,035 (intraday rebound resistance), $5,100 (weekly high).
The $4,968-$4,970 range forms a ‘triple bottom’ support pattern, with strong buying power limiting downside momentum in the short term. It is highly likely to remain within the $4,950-$5,100 range, awaiting direction from the Fed’s decision.
Market Outlook
Scenario Forecast
Hawkish scenario (70% probability): The Federal Reserve maintains interest rates unchanged, the dot plot lowers the expectation for rate cuts within the year to one or fewer, and Powell emphasizes the stickiness of inflation and the necessity of high interest rates. Gold prices may test support at $4,950-$5,000; if $5,000 is breached, it may further test $4,900.
Neutral scenario (20% probability): The Federal Reserve stays on hold, the dot plot maintains expectations for two rate cuts within the year, and Powell adopts a cautious tone. Gold prices fluctuate within the $5,000-$5,100 range, awaiting confirmation from subsequent economic data.
Dovish scenario (10% probability): The Federal Reserve signals interest rate cuts and mentions conditions for a June cut. Gold prices are expected to rebound, breaking through $5,100, with potential to reach the $5,150-$5,200 range.
Trading Strategy
In the short term, focus on range-bound trading, paying attention to the critical $5,000 level. Aggressive traders may consider light positions around $4,950-$4,970, with a stop-loss at $4,900 and targets at $5,050-$5,100; conservative traders should wait for the Fed’s decision before entering, strictly controlling position size and risk.
Economic Calendar
March 18, 02:00 – The Federal Reserve FOMC announces its interest rate decision.
March 18, 02:30 – Federal Reserve Chair Powell holds a press conference.
March 19, 20:30 – U.S. Initial Jobless Claims for the week ending March 14.
March 20, 20:30 – U.S. Core PCE Price Index for February (a key inflation indicator closely monitored by the Federal Reserve).
Frequently Asked Questions
Q1: What is the current core influencing factor for gold?
A1: The current core conflict for gold lies in the interplay between expectations of Federal Reserve policy, geopolitical risk aversion, and central bank gold purchases. High-interest rate expectations and crowded depreciation trades weigh on gold prices, while support comes from Middle Eastern tensions and ongoing central bank gold acquisitions, keeping the market balanced ahead of the Fed’s decision.
Q2: Why does TD Securities consider gold vulnerable?
A2: TD Securities identifies five major risks: First, excessive crowding in depreciation trades, with institutional positioning at historical highs; second, normalization of money supply growth; third, market pricing reflecting an extended pause in rate hikes; fourth, easing concerns over the Federal Reserve’s independence; fifth, Middle Eastern conflicts potentially reducing central bank demand for gold purchases. These combined factors have put downward pressure on gold.
Q3: Why does geopolitical conflict both benefit and harm gold?
A3: The escalation of geopolitical conflicts triggers risk aversion, enhancing gold’s role as a safe-haven asset, thus benefiting it; however, the conflict also pushes up oil prices and inflation expectations, forcing the Federal Reserve to maintain high interest rates, which increases the cost of holding gold, thereby harming it. The final impact depends on how the market weighs policy and risk pricing.
Q4: Why is the $5,000 level important for gold?
A4: The $5,000 level represents a key psychological threshold and an area of heavy trading. Multiple tests at this level have found buying support. A breakdown would signify a collapse in bullish confidence, potentially triggering further corrections; holding above it indicates strong buying interest below, laying the foundation for a rebound. It is currently the pivotal point of contention between bulls and bears.
Q5: How should we assess gold’s movement after the Federal Reserve decision?
A5: Two factors are critical: First, the number of rate cuts expected in the dot plot for the year; second, Powell’s stance on inflation and rate cuts. A reduction in rate-cut expectations or hawkish remarks will weigh on gold prices, while maintained rate-cut expectations or dovish signals will boost gold prices. The wording of the decision will directly dictate the direction of gold prices over the next 1-2 weeks.
