Gold prices have recorded their largest weekly increase since March due to concerns about the US banking sector. This has led to speculations that the Federal Reserve may cut rates sooner than anticipated. Bullion prices remained steady on Friday, having risen by about 3% during the week. The price of gold has been on an upward trajectory since March due to falling Treasury yields and worries over banks, as well as the debt ceiling standoff in the US.
The current focus is the deepening rout in US regional lenders and what that means for interest rates. As credit conditions tighten, there are expectations that the Fed may start cutting borrowing costs as early as July. Lower interest rates are supportive for gold, which does not offer any interest.
The US debt-ceiling standoff has raised 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. According to RBC Capital Markets strategist Christopher Louney, the risk of a technical US default is “currently under-appreciated.”
The World Gold Council has reported a significant pullback in central bank purchases during the first quarter of the year, though demand remains strong. This decline in central bank purchases may weigh on bullion after record central bank buying in 2022 supported prices even as investors sold the precious metal amid a surging dollar and bond yields. At present, spot gold is at $2,046.31 per ounce, with silver remaining steady and platinum and palladium edging higher. The decline in central bank purchases may impact the price of gold in the coming weeks.
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