Gold May Return to Consolidation around USD1,900/oz before Moving Much Higher

The gold market surged as prices saw their best week in three years amidst the fallout of the U.S. banking sector. After dropping to the $1,968 area early on Monday, March 20, gold attracted fresh buying, climbing to a yearly high at the start of the European session, breaking the psychological $2,000 level. The strong intraday bullishness confirmed Friday's break above year-to-date highs around the $1,958 area and supports the outlook for a continuation of the near-term bullish move of the past two weeks or so.

The biggest newsmaker here over the last week and going forward is the fact that the Federal Reserve monetary policy meeting – is now as important as never before. Markets are pricing in a 25-basis-point hike, but investors are inclined to see a potential pause and rate cuts that could follow. JPMorgan Chase & Co. estimated that the additional funding from the U.S. central bank's new 'Bank Term Funding Program' could add up to a maximum of $2 trillion in liquidity.

After wild swings in rate hike expectations this week, the gold market is in a winning position. Meanwhile, ECB raised the rate by 50 basis points last week, holding onto its hawkish stance despite own banking sector drama in the region and general market turbulence.

While many positive gold outlooks are focused on its technicals, there is a good chance that fundamentals will ultimately come into play and dominate the market. Considering Comex's vault run is well underway, it's only a matter of time before Comex has its own SVB moment. At this point, gold could exceed any current price targets.

Prices are, however, unlikely to remain in the $1950-2000 range for long. Either the price will enter a new paradigm with $2200 being the next medium term target, or things will stabilize and $1900 will become stickier in the long run – with a good portion of extra volatility. From a purely technical perspective, the latter scenario is more likely, as large moves usually take time to consolidate.