Gold Rises Above $2,000 For First Time In A Year On Haven Demand

(March 20,2023-Bloomberg News)

Gold steadied, after rising above $2,000 an ounce for the first time in a year after a deal to buy Credit Suisse Group AG failed to entirely ease fears over the global banking sector.

Bullion surged 6.5% last week in its biggest advance since early on in the pandemic after several regional American lenders collapsed and concerns grew over Swiss bank’s health. The haven rose as much as 1% on Monday — before paring gains — as European financial stocks fell in the wake of a government-arranged deal to takeover Credit Suisse, which is set to wipe out holders of its riskiest bonds.

UBS to Buy Credit Suisse in $3 Billion Deal to Fight Crisis

“The treatment of AT1 bonds has introduced a new source of uncertainty,” Marcus Garvey, head of metals strategy at Macquarie Group Ltd., wrote in a note. “The longer uncertainty rolls on, with neither market fears being wholly calmed nor a full-blown systematic crisis unfolding, the higher gold prices should be able to trade.”

It’s a sharp turnaround for bullion, which slid last month on expectations the Federal Reserve would continue its aggressive monetary tightening to curb inflation. Those bets have since been greatly diminished, with swaps traders now split on whether the central bank will hike again this year.

That’s a boon for non-yielding gold, and investors have responded by increasing their allocations to the market. In tonnage terms, exchange-traded fund holdings of the metal rose the most since April last week, according to an initial tally by Bloomberg.

All eyes will now shift to the Fed’s meeting that finishes on Wednesday, “where the outcome is going to be the most difficult to predict in years,” said Ole Hansen, head of commodities strategy at Saxo Bank A/S. A shift to a more dovish outlook from policymakers at a time when inflation remains hot could push gold even higher.

Spot gold was little changed at $1,985.52 an ounce as of 9:56 a.m. in London, after earlier climbing as high as $2,009.73. The last time bullion traded above the $2,000 mark was in March 2022. The Bloomberg Dollar Spot Index was steady after falling 0.6% last week. Silver was little changed, while platinum and palladium fell.

Whether gold can hold onto these gains will really depend on the dollar, Commonwealth Bank of Australia analyst Vivek Dhar said in a note.

“We consider the US dollar a stronger safe-haven asset than gold,” Dhar said. “That means that if risk events are large enough we will typically see markets shift from gold to the US dollar.”