Gold prices retreat from recent highs amid rate hike uncertainty

By Ambar Warrick

Investing.com -- Gold prices edged lower on Wednesday after falling from a six-week high in the prior session, as a mixed reading on U.S. inflation brewed some uncertainty over the Federal Reserve’s stance on monetary policy, while concerns over a banking crisis in the country persisted.

The yellow metal rose sharply in recent sessions as the collapse of several U.S. banks triggered a rush into traditional safe havens. Pressure on the banking system also saw markets begin pricing in a less hawkish Fed, on bets that the central bank will try to prevent more economic turmoil.

U.S. consumer inflation eased as expected in February, data showed on Tuesday, but core inflation unexpectedly rose from the prior month - keeping the pressure on the Fed to tighten policy further.

U.S. Treasury yields recovered from a recent rout on Tuesday, pressuring gold prices, while markets were also positioning for a 50 basis point hike by the European Central Bank on Thursday.

Spot gold fell 0.1% to $1,902.18 an ounce, while gold futures sank 0.3% to $1,905.90 an ounce by 20:04 ET (00:04 GMT). Both instruments fell about 0.5% in the prior session.

Fed Funds futures prices show that markets are now pricing in a greater possibility of a 25 basis point hike by the Fed, when it meets next week. Moreover, the bank’s signals on future policy will be closely watched in the face of a potential banking crisis.

The U.S. government intervened to restore faith in the banking system after the collapse of Silicon Valley Bank. But concerns over contagion from the collapse triggered a rout in stock markets, while ratings agency Moody’s also downgraded its outlook on the U.S. banking system, citing a “crisis of confidence” in the sector.

Other precious metals retreated on Wednesday, following a series of strong gains. Silver futures fell 1.4% to $21.742 an ounce, while platinum futures fell 0.2% to $988.60 an ounce.

Among industrial metals, copper prices retreated further as markets feared that worsening economic conditions could severely dent industrial activity this year, in turn hurting demand for copper.

Copper futures fell 0.5% to $3.9870 a pound, after tumbling over 1% in the prior session.

Focus is now on Chinese industrial production data, due later in the day, for more signs of an economic recovery in the world’s largest copper importer.