Gold Price Prediction: XAU/USD forges bullish path above $1,960, Fed and banking unrest anticipated

Following a retracement from a Year-To-Date (YTD) high, the gold price (XAU / USD) regains upward momentum amid cautious optimism in the banking sector. The market's inaction during the Japanese holiday as well as the failings of US Treasury bond yields to prolong the recent corrective bounce off a six-month low could lend support to the recovery movements.

Headlines indicating that U.S. policymakers are searching for ways to insure all bank deposits and that major central banks are rushing to keep markets liquid with the US Dollar flow appear to favor Gold purchasers.

Notably, the most recent reading of the CME's FedWatch tool indicates that the likelihood of a 0.25% Fed rate rise on Wednesday is now close to 75%, up from 65% last week. This allows US Treasury bond yields to rebound. However, Treasury bond yields remain inactive due to Japan's national holidays, which restrict bond trading in Asia. The previous day saw the 10-year and 2-year US Treasury bond yields rebound from their lowest levels since September 2022.

Gold traders will be keenly interested in the Fed's response to the banking crisis, as the 0.25 percentage point rate hike is a foregone conclusion. Should the dot-plot hint at a policy reversal, the US Dollar could experience further losses, which could propel the XAU/USD exchange rate.