Economic news

Gold Retreats as Waning Banking Crisis Fears Dampen Demand

  • Some investors still holding onto gold - analyst
  • Asian shares surge on Wednesday
  • Gold could pierce all-time highs this year- MKS PAMP

March 29 (Reuters) - Prices of safe-haven gold dropped on Wednesday as easing fears of a further contagion from the global banking crisis whetted appetite for riskier assets.

Spot gold was trading 0.6% lower at $1,961.80 per ounce, as of 0749 GMT, after rising 1% on Tuesday. U.S. gold futures slipped 0.5% to $1,963.10.

"We've seen a natural retracement ... gold is pulling back after a failed 'bid' to break above $1,975," said Matt Simpson, senior market analyst at City Index.

But some investors "still seem to be holding onto gold 'just in case' there's another skeleton or two lurking in the closet," Simpson said.

The dollar firmed, making bullion expensive for overseas buyers. Asian shares surged on Wednesday.

While gold would "ultimately" be supported by financial uncertainty, prices could become more volatile over coming weeks if inflation and U.S. economic data stay elevated, Simpson said.

Data on Tuesday showed U.S. consumer confidence unexpectedly increased in March, while February's U.S. trade deficit in goods widened modestly.

Analysts at Macquarie, in a note, said they expect the Fed to "prioritise bringing inflation back to target – with one more rate hike and then no cuts in the early stages of economic contraction," resulting in cyclically weaker gold prices through the second half of 2023.

The opportunity cost of holding non-yielding gold rises when interest rates are increased.

Markets are pricing in a nearly 42% chance of a 25-basis-point Fed hike in May.

In contrast, refiner and trader MKS PAMP said in a note that "the Fed will have to choose between higher inflation, a harder landing or financial instability- all outcomes will keep safe havens in play," likely prompting gold to retest and pierce all time highs ($2,070/oz) this year.

Silver fell 0.5% to $23.15 per ounce, platinum eased 0.1% to $962.05 and palladium was down 0.3% at $1,414.64.

Reporting by Kavya Guduru in Bengaluru; Editing by Sherry Jacob-Phillips and Sonia Cheema

Source: Reuters

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