Gold declined after surging more than 5% over the three previous sessions as the collapse of a major US bank spurred a flight to haven assets.
(Bloomberg) — Gold declined after surging more than 5% over the three previous sessions as the collapse of a major US bank spurred a flight to haven assets.
The failure of Silicon Valley Bank, combined with a sharp drop in Treasury yields and dollar weakness, has been a boon for bullion, driving its biggest gain since November on Monday. The metal came under pressure as the dollar climbed on Tuesday, before the release of key US inflation data.
Gold has also drawn support as the banking crisis prompted bets the Federal Reserve will be forced to temper aggressive monetary tightening, and even cut interest rates, to stabilize the financial system. US 10-year bond yields have fallen more than 40 basis points since Wednesday, a positive for non-interest bearing gold.
Swaps markets see at most 25 basis points of rate hikes from the Fed over the next two meetings, before a quick shift to cuts later in the year. It’s a massive change from expectations for more large rate rises from the central bank, which weighed heavily on gold last month.
“We’ve said the Fed will hike until they break something. Done,” said Nicky Shiels, head of metals strategy at MKS PAMP SA. “Gold should take the bullish route given the new inflation, Fed and financial market risks.”
Consumer price data due later Tuesday becomes even more crucial now that traders see the Fed as reluctant to raise rates. Inflation remains well above target in the US and may drive demand for gold as a hedge if it gets out of control.
While the inflation data “remains critical, we view recent market events as more structurally supportive for gold prices,” Citigroup Inc.’s Aakash Doshi wrote in a note.
Spot gold fell 0.5% to $1,903.35 an ounce as of 9:33 a.m. in London. Bloomberg Dollar Spot Index rose 0.3%. Silver fell after surging 6.2% on Monday, while platinum and palladium also dropped.
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