Gold headed for its biggest weekly advance since the middle of March as renewed worries about the US banking sector fueled bets that the US Federal Reserve might have to cut rates sooner than anticipated.
Bullion was steady yesterday, and was up about 3 percent this week.
It has surged since early March on falling US Treasury yields, and nervousness over banks and a debt ceiling standoff in the US Congress.
Gold climbed to a one-year peak on Thursday and is within reach of the record high set in 2020.
The main focus at the moment is the deepening rout in US regional lenders and what that means for interest rates. There are expectations that the Fed might start cutting borrowing costs by July in response to the tightening credit conditions. Lower rates are supportive for the precious metal, which does not offer any interest.
The debt-ceiling standoff, which could have disastrous consequences if it is not resolved, drove up rates on short-term Treasury bills, pushing them over 10-year yields by the most in at least three decades. The steep inversion of the curve is worsening recession concerns and boosting the appeal of haven assets.
The risk of a technical US default is “currently under-appreciated,” RBC Capital Markets strategist Christopher Louney said in a note. “We’d look out for investors making significant allocations for signs gold has legs from here.”
Meanwhile, central bank purchases saw a significant pullback in the first quarter of this year, a report from the World Gold Council said.
Although demand remains strong, the decline might weigh on bullion after record central bank buying last year supported prices even as investors sold the precious metal amid a surging US dollar and bond yields.
Spot gold declined 0.2 percent to US$2,046.31 an ounce as of 7:41am in London trading after rising 3.4 percent in the previous three sessions.
The Bloomberg Dollar Spot Index yesterday fell 0.2 percent and was down 0.6 percent over the week. Silver was steady, while platinum and palladium edged higher.
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