Gold prices fall amid rising yields, easing bank crisis fears

By Ambar Warrick

Investing.com -- Gold prices fell in Asian trade on Wednesday, coming under pressure from an overnight surge in Treasury yields and as regulators further downplayed concerns over a widespread U.S. banking crisis. 

But the yellow metal still remained relatively well bid, with investors building their long positions on bullion prices in recent weeks on concerns that the recent collapse of several U.S. banks could leave lasting scars on the economy. 

Treasury yields surged after the Federal Reserve's head of banking supervision, Michael Barr, said in a testimony that the U.S. banking system was resilient, and that the recent collapse of Silicon Valley Bank was due to a “textbook case of mismanagement.” 

Spot gold fell 0.2% to $1,969.01 an ounce, while gold futures expiring in June fell 0.2% to $1,987.00 an ounce by 22:02 ET (02:02 GMT). Both instruments made another run at the $2,000 level on Tuesday, before closing the session below key highs.

Barr’s comments spurred some bets that the Fed may still have enough economic headroom to keep raising interest rates, especially if the banking sector stabilizes.

But Treasury yields were still trading well below highs hit earlier this year, given that the Fed recently hinted that interest rates were close to reaching terminal levels, after which the bank will pause its rate hike cycle.

Gold prices had benefited from this notion earlier in the month. 

"Fed policy is likely to be key for gold over the medium term. The Fed is likely approaching a peak in the Fed funds rate, and we could see a pivot over the second half of this year,” analysts at ING wrote in a note. 

“We would expect real yields to follow policy rates lower later in the year, which should prove supportive for gold prices.” 

Other precious metals retreated on Wednesday, with platinum and silver futures losing 0.3% and 0.2%, respectively.

Among industrial metals, copper prices were rangebound as markets hunkered down ahead of more economic signals from major importer China this week.

Copper futures fell 0.1% to $4.0743 a pound, and have moved less than 0.1% in either direction so far this week. 

Chinese business activity data is due on Friday, and is expected to show some cooling in March as a post-COVID bounce runs out of steam.