Gold prices traded in a narrow range on Wednesday as some investors stayed away from the U.S. Federal Reserve‘s decision on interest rates and the policy outlook. Spot gold was flat at $1,939.59 an ounce by 03:18 GMT after falling 2% on Tuesday. U.S. gold futures rose 0.1% to $1,943.50.
“Market developments remain volatile, but as it stands, banking sector wounds appear to be showing tentative signs of recovery following emergency insurance and reassurances from the authorities…gold edged lower as demand for safe havens dissipated,” said OCBC FX strategist Christopher Wong.
Bullion recently rallied as much as 10%, or about $180, to a one-year high on safe-haven demand following the collapse of the US-based Silicon Valley bank and the crisis at lender Credit Suisse. However, prices eased after the Credit Suisse bailout boosted risk appetite, although uncertainty in the financial system remained.
U.S. Treasury Secretary Janet Yellen told bankers on Tuesday that the U.S. banking system is stabilizing, but that more action may be needed “if smaller institutions suffer from deposits that pose a risk of contagion.”
Investors’ attention is now on the Fed’s decision scheduled for 18:00 GMT, followed by Fed Chairman Jerome Powell’s press conference. The Fed is widely expected to raise rates by 25 basis points, according to CME’s FedWatch tool.
“The key focus is on how the Fed communicates its forward guidance, particularly the ‘higher, longer’ rhetoric and dots,” said OCBC’s Wong.
“If we manage to get a higher dot chart, then that represents a still hawkish Fed that is determined to fight inflation … a potential hawkish reassessment could undermine gold prices.”
Gold is seen as a hedge against inflation, but the opportunity cost of holding unprofitable gold rises when interest rates rise to reduce inflation. Spot silver was down 0.1% at $22.36 an ounce, platinum was up 0.4% at $972.10 and palladium was up 0.8% at $1,399.59.
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