Gold prices set for strong week as bank jitters spur safe haven demand

By Ambar Warrick

Investing.com-- Gold prices were flat in early Asian trade on Friday, and were set to log their strongest week in two months as fears of a potential banking crisis drove up safe haven demand.

Bullion prices also benefited from doubts over whether the Federal Reserve had enough headroom to keep raising interest rates, given the growing pressure on the economy.

But a rush into safe havens provided the biggest boost to gold, as the collapse of several regional U.S. banks ramped up concerns over contagion in the broader economy, as well as fears of a looming recession.

Spot gold rose slightly to $1,920.12 an ounce, while gold futures rose 0.1% to $1,923.95 an ounce by 20:36 ET (00:36 GMT). Both instruments were trading close to their highest levels since early-January, and were up nearly 3% for the week.

The collapse of Silicon Valley Bank and other smaller regional peers saw markets pile into gold this week. While government intervention and the bailout of other stressed lenders helped stem fears of contagion, markets still remained on edge over a broader banking crisis.

This also saw traders significantly tone down expectations of more interest rate hikes by the Fed, ahead of a meeting next week. Markets are pricing in a nearly 90% chance that the Fed will hike rates by 25 basis points (bps), smaller than prior expectations for a 50 bps hike.

This notion weighed on the dollar, which also benefited metal markets. But the greenback pared a bulk of its losses this week, helped by some safe haven demand and as some U.S. inflation data read stronger-than-expected for February.

Relatively high inflation puts more pressure on the Fed to hike interest rates. Focus is now squarely on the bank’s meeting next week, which is also expected to provide more cues on monetary policy.

Rising interest rates push up the opportunity cost of holding non-yielding assets, and had battered metal markets through 2022.

Other precious metals firmed on Friday, and were set to end the week higher. Silver and platinum futures rose 0.6% and 0.2%, respectively, and were up 7.1% and 2%, respectively, for the week. 

Among industrial metals, copper prices  steadied on Friday after marking bruising losses this week on fears that a potential recession will severely crimp demand. 

Copper futures were flat at $3.8742 a pound, and were down nearly 4% this week.