Banking Collapse Fears Drive Gold Rally
The yellow metal experienced a sharp rally over the past week, as fears of a US and European banking collapse led to increased investments in traditional safe-haven assets. Expectations that the Fed will struggle to continue raising rates contributed to a weaker dollar.
Gold Crosses $2,000 Level Ahead of Pivotal Fed Meeting
Gold prices surpassed the $2,000 per ounce mark for the first time in a year on Monday, although briefly, as caution grew ahead of a critical Fed meeting on Wednesday. Spot gold increased marginally to $1,980.14 an ounce, while gold futures remained flat at $1,983.70 an ounce.
Markets Await Fed Interest Rate Decision
This week's primary focus is the outcome of a two-day Fed meeting on Wednesday. The bank is expected to increase interest rates by 25 basis points (bps), a smaller figure than the previous expectation of a 50 bps hike. A looming banking crisis led markets to reassess the likelihood of further tightening by the central bank.
Precious Metals Benefit from Less Hawkish Fed
Gold and other precious metals stand to gain from a less aggressive Fed, as rising interest rates increase the opportunity cost of holding non-yielding assets. Uncertainty surrounding the Fed also impacted the dollar, benefiting metal prices, while emergency liquidity measures for the banking sector undermined some monetary tightening efforts.
Inflation Trends May Lead to Further Interest Rate Increases
The bank may raise interest rates further despite US inflation exceeding the Fed's target range.
Other Precious Metals and Copper Prices
On Tuesday, other precious metals were relatively stable but had experienced strong gains in recent sessions. Platinum futures fell 0.1% to $996.55 an ounce, while silver futures rose 0.1% to $22.665 an ounce. Copper prices remained stagnant after five days of gains, still trading at low levels due to concerns over slowing economic growth.