Gold prices near 11-mth high as markets gauge Fed liquidity measures

By Ambar Warrick

Investing.com -- Gold prices traded just below their strongest levels in 11 months on Monday as markets gauged the impact of emergency liquidity measures from the Federal Reserve and other major central banks amid increasing fears of a banking crisis.

The Fed, the European Central Bank, and several other major central banks announced new measures to increase liquidity for the banking sector to stem any potential contagion from the collapse of several lenders over the past two weeks.

The move came shortly after beleaguered lender Credit Suisse Group AG (SIX:CSGN) was taken over by Swiss rival UBS Group AG (SIX:UBSG) in a deal facilitated by regulators.

Ructions in the banking sector, which threaten to spill over into the rest of the economy, underpinned safe haven demand for gold in recent weeks, driving the yellow metal close to $2,000.

The increased liquidity measures by the Fed also undermine a year of monetary tightening done by the bank to curb inflation, and are likely to keep gold demand supported.

Spot gold steadied around $1,976.62 an ounce, while gold futures rose 0.4% to $1,981.90 an ounce by 20:34 ET (00:34 GMT). Both instruments rallied around 6% last week amid increased safe haven demand.

Fears of a U.S. banking crisis spurred heavy flows into gold, especially after the collapse of Silicon Valley Bank. This also saw investors begin pricing in a less hawkish Federal Reserve in the coming months, as the bank races to stem further pressure on the economy from rising interest rates.

Focus this week is squarely on the results of a two-day Fed meeting on Wednesday, with the bank expected to hike rates by a relatively smaller 25 basis points. The dollar was flat on Monday in anticipation of the meeting.

Other precious metals also saw bids on Monday, albeit at a mixed pace. Silver futures rose 0.3% to $22.525 an ounce, while platinum futures fell 0.2% to $979.15 an ounce.

Among industrial metals, copper prices rallied on the new liquidity measures, given that they could potentially result in a less severe economic downturn this year.

Copper futures jumped 0.9% to $3.9370 a pound. But the red metal was still nursing sharp losses from the prior week, amid concerns that demand for the metal could slow due to global economic headwinds.