Support for gold amid economic and banking sector concerns

Investors continue to opt for the precious metal amid economic and banking sector concerns

A shop attendant carries a tray of gold necklaces at a jewellery store in Singapore September 18, 2008. Gold reversed earlier gains to fall below $860 per ounce on Thursday, down about 0.4 percent from the previous day, as buying ran out of steam. It had earlier risen by more than 3 percent to $892.10, extending its biggest ever one-day rise in absolute dollar terms on Wednesday, when buyers flocked to the precious metal as a safe haven asset, and as a hedge against falling stocks.  REUTERS/Vivek Prakash (SINGAPORE)
Gold prices rise as traders look ahead to US inflation data and a decision on interest rates by the Federal Reserve. Photo: Vivek Prakash/Reuters

The price of gold (GC=F) rose on Tuesday as investors continue to opt for the precious metal amid economic and banking sector concerns.

Focus turned to US inflation data due this week for hints on what path the Federal Reserve may take with interest rates.

Gold was trading up 0.28% at $2,038.90 (£1619.62).

This isn't far from the August 2020 record of $2,069.40, according to Refinitiv data.

“Gold prices appear range-bound through the early part of weekly trading, although buyers will be happy to see that bulls managed to defend previous psychological resistance at $2,000 as support following the profit taking that took place late last week," Jameel Ahmad, chief market analyst at CompareBroker.io, said.

"This represented a pat on the back for those who remain bullish on the precious metal over the longer-term. Tomorrow’s inflation report out of the United States is seen as the key risk for gold price this week.”

Ahmad also highlighted that gold buyers want to see indications of inflation cooling off in the US.

“This would provide hope that at some point later this year the Fed will begin to prepare investors for the eventual return of lower rates in the United States,” he said.

Gold price outlook

While the expectation of a Fed rate cut "is a bit too optimistic and early", gold could consolidate around $1,980-$2,060 in the short term, Carlo Alberto De Casa, external analyst at Kinesis Money, told Reuters.

However, for now, he said markets are in a "wait and see" mode as the Fed will take into account the US consumer price index (CPI), which is due on Wednesday.

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So far, higher interest rate expectations have pushed back bullion from near record-highs. However, many traders still appear reluctant to give up on a record price.

Investors are currently pricing in an 88% chance of the US central bank holding rates in June, after chair Jerome Powell recently said that policy decisions will be data driven. He also hinted at a pause in the cycle.

Meanwhile, Commerzbank analyst Carsten Fritsch said in a note to clients that there is no scope for the Fed to implement rate cuts this year and said gold is therefore likely to remain above the $2,000-mark.

Gold appeal

The appeal to buy gold has also been supported by the banking sector crisis, due to its lack of counterparty risk and its safe-haven reputation.

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Moreover, investors have wanted to better diversify their existing portfolios — whether that be cash, stocks or other digital currencies. A trend that Doug Turner at Kinesis Money thinks will continue whilst fears and stability within the banking sector remain.

In other precious metals, silver (SL=F) was trading down 0.15% to $25.79.

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