Gold slips from 6-week high, but bank crisis underpins demand

By Ambar Warrick

Investing.com -- Gold prices fell from a six-week high on Thursday as investors locked in recent profits, although fears of a brewing banking crisis and uncertainty over monetary policy kept the yellow metal’s safe haven appeal high.

Fears of an imminent banking crisis also somewhat eased after Swiss bank Credit Suisse Group AG (SIX:CSGN) said it will exercise a $54 billion credit facility from the Swiss National Bank to bolster its liquidity.

Concerns that more dominoes would fall among U.S. and European banks sparked a sharp rally in gold prices this week, as investors turned to traditional safe havens in the face of a global economic crisis. 

But investors used the Credit Suisse funding news to lock in some recent profits in the yellow metal, while uncertainty over U.S. monetary policy also fueled some strength in the dollar.

Spot gold fell 0.4% to $1,910.95 an ounce, while gold futures fell 0.9% to $1,914.50 an ounce by 22:13 ET (02:13 GMT). Both instruments were up nearly 2.6% so far this week.

The dollar recovered sharply against a basket of currencies in overnight trade, while Treasury yields also rose as markets gauged the potential for more interest rate hikes by the Federal Reserve.

While fears of a banking crisis spurred bets that the Fed will lack enough economic headroom to raise rates, signs of sticky core consumer inflation showed that the Fed may still consider maintaining its hawkish rhetoric.

Fed Fund futures prices show that markets are pricing in a 54.6% chance that the Fed will hike rates by 25 basis points next week. But there also stands a 45.4% chance that the bank will stand pat on rates.

Gold stands to benefit from any pauses in the Fed’s rate-hike cycle, given that it increases the yellow metal’s appeal against the dollar, and also puts a cap on the opportunity cost of holding non-yielding assets.

Rising interest rates had battered metal markets through 2022, and are likely to limit a recovery in the space this year.

Other precious metals also retreated from recent highs on Thursday. Platinum futures fell 0.1% to $966.05 an ounce, while silver futures fell 0.3% to $21.808 an ounce.

Among industrial metals, copper prices were muted, but were nursing steep losses this week amid growing fears that a banking crisis will crimp economic activity this year, hurting demand for the industry-exposed metal.

Copper futures were flat at $3.8850 a pound, and were down nearly 4% this week.