On Thursday, the dollar recovered along with a rise in bets that the Federal Reserve will keep raising interest rates, which reduced demand for gold as a safe haven due to easing fears of a banking crisis.
As investors re-evaluated their concerns about an impending economic crisis in the wake of signs of stability in the banking sector, the yellow metal continued to slide and fell further from the $2,000 level.
As risk appetite slowly returned to the markets following regulators‘ assurances that the U.S. banking system was secure and no unfavourable developments had occurred in the sector over the previous two weeks, gold’s appeal as a safe haven was diminished.
By 22:23 ET, spot gold was down 0.3% to $1,959.12 an ounce, while gold futures were down 0.4% to $1,976.45 an ounce (02:23 GMT). On Wednesday, both assets lost about 0.5%.
As concerns over a banking crisis diminished, traders began pricing in a higher likelihood of future interest rate increases by the Federal Reserve in the near future, which put additional downward pressure on gold prices. This pressure also came from a recovery in the dollar and rising Treasury yields.
The recent failure of a number of U.S. banks was attributed by regulators to inadequate risk management, despite the fact that the overall banking system was resilient. As the Fed continues to fight inflation, this is anticipated to give the bank more economic leeway to raise rates.
In Asian trade, the dollar increased against a basket of currencies by 0.1% after posting modest gains on Wednesday. This pressured the price of gold. A rise in Treasury yields added to the burden.
But as investors questioned how much longer the Fed could continue raising rates, the dollar was suffering significant losses for the month of March, and yields were trading well below annual highs. Given that the possibility of any pauses in the Fed’s rate hikes is positive for non-yielding assets, gold was still trading about $120 away from a record high for 2020.
On Thursday, silver, and platinum futures both experienced declines. Platinum futures fell by 0.4%, while silver fell by 0.1%.
In the industrial metals, copper futures dropped 0.4% to $4.0682 per pound as investors awaited Friday’s important data on Chinese economic activity.
As the post-COVID economic boom fizzled out, it is anticipated that activity in the manufacturing and service sectors slowed down in March. The largest copper importer in the world may experience weak demand as a result.