Gold extended gains and copper dropped as the collapse of Silicon Valley Bank soured risk sentiment and curbed expectations for more aggressive rate hikes by the Federal Reserve.
(Bloomberg) — Gold extended gains and copper dropped as the collapse of Silicon Valley Bank soured risk sentiment and curbed expectations for more aggressive rate hikes by the Federal Reserve.
The second-largest collapse of an American lender in history has sparked nervousness about potential spillover effects across the financial system and prompted US officials to move to protect depositors’ funds on Sunday. Global stocks slumped on Monday, with copper dropping to a two-month low as it tracked the broader move in risk assets, while gold topped $1,900 an ounce.
The bank failure has also driven a massive shift in expectations for more hikes by the Fed, with swaps markets now seeing no more increases this year as the most likely outcome. Benchmark 10-year Treasury yields plunged to the lowest in over a month, supporting bullion.
“With two-year yields almost down 1% in less than a week and the market increasingly pricing away the prospect for a rate hike, gold has to go higher,” said Ole Hansen, head of commodities strategy at Saxo Bank A/S. “Gold is the most rate- and dollar-sensitive commodity.”
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.
“Any escalating financial sector distress would almost certainly see an initial gold selloff 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.”
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 as much as 1.9% to $1,902.79 an ounce. It has climbed about 5% 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 2.6% on the London Metal Exchange to the lowest since Jan. 6, reversing early gains as stock markets turned lower.
–With assistance from Mark Burton.
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