Gold prices backed off from the key $2,000 level on Monday as investors assess the health of the global banking sector, even as increasing bets of a Federal Reserve rate pause kept bullion near a one-year peak.
Earlier, spot gold climbed 1.6% to its highest since March 2022 at $2,009.59 per ounce, just short of a record set during the onset of the pandemic. By noon ET, it reversed to a 0.6% loss at $1,977.42 per ounce.
US gold futures, meanwhile, rose 0.2% to $1,978.00 per ounce in New York.
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“Gold’s volatility reflects that the market is digesting the recent shotgun wedding between Credit Suisse and UBS and the possible contagion,” independent analyst Ross Norman told Reuters.
Prices have rallied more than $100 after the collapse of Silicon Valley Bank earlier this month, the second-largest banking crisis in US history, which also ensnared 167-year-old lender Credit Suisse.
Europe’s bank shares fought back from an early slump led by UBS Group’s rescue deal to buy Credit Suisse failed to assuage market fears of a global banking contagion, sending their shares sharply lower.
Bullion touched record highs in some currencies on Monday, and near an all-time peak in US dollars, on the back of the latest banking sector turmoil, which has sent safe-haven demand skyrocketing.
“It’s all about risk hedging,” said StoneX analyst Rhona O’Connell. “A Swiss bank is supposed to be the be all and end all of safe havens,” she said. “If something else happens in the banking sector, you can expect gold to go higher.”
Investors will keenly watch a Fed policy decision due on Wednesday. Traders are now pricing in a 49% chance of the Fed holding rates in the current range, according to Reuters.
Ole Hansen, head of commodity strategy at Saxo Bank, told Bloomberg that the outcome of this week’s Fed meeting is “going to be the most difficult to predict in years.” He added:
“A shift to a more dovish outlook from policymakers at a time when inflation remains hot could push gold even higher.”
“Today’s rejection above $2000 may trigger some profit taking, but in our opinion not a change in direction,” Hansen said in a separate note to Reuters.
“We maintain a bullish outlook for gold, especially if the FOMC, driven by the current banking and liquidity crisis, is forced to change its focus away from fighting inflation to maintaining stability.”
(With files from Bloomberg and Reuters)
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