Gold extended gains as the collapse of a US bank curbed expectations for more aggressive rate hikes by the Federal Reserve, while also stoking haven demand.
(Bloomberg) — Gold extended gains as the collapse of a US bank curbed expectations for more aggressive rate hikes by the Federal Reserve, while also stoking haven demand.
The failure of Silicon Valley Bank — the second-largest collapse of an American lender in history — has spurred nervousness about potential spillover effects across the financial system and prompted US officials to move to protect depositors’ funds on Sunday.
Bullion climbed to a one-month high as the dollar and Treasury yields slumped on speculation the Fed will slow the pace of interest-rate hikes. Economists at Goldman Sachs Group Inc. no longer expect an increase from the central bank at its March meeting, given stresses in the banking system.
“Any escalating financial sector distress would almost certainly see an initial gold sell-off to raise liquidity, followed by fresh safe haven buying,” Rhona O’Connell, an analyst at StoneX, wrote in a note. “Its perceived market role likely now to revert to risk-hedging as the headline element.”
It’s a rapid turnaround for gold, which has now jumped past its 50-day moving average, signaling a change in momentum. The metal surged 2% on Friday after US jobs data pointed to easing inflationary pressures in the labor market.
The US consumer price index due Tuesday may also influence the Fed’s next move. Traders will be watching for signs fear is spreading to other commercial banks.
Spot gold rose 0.9% to $1,885.11 an ounce as of 10:16 a.m. in London. It has climbed about 4% since Wednesday’s close as concern over SVB grew. The Bloomberg Dollar Spot Index declined 0.4%. Silver, platinum and palladium gained.
Copper fell as much as 1% on the London Metal Exchange, reversing early gains as stock markets turned lower. The metal was trading down 0.9% at $8,788.50 a ton at 9:59 a.m. local time. Aluminum lost 0.8%, while nickel and tin climbed more than 1%.
–With assistance from Mark Burton.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.