Economic risks buoy gold above $2 000 as Fed verdict nears

3rd May 2023

By: Reuters


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Gold firmed well above the $2 000 level on Wednesday, buoyed by uncertainty surrounding the US debt ceiling and other economic headwinds, while investors positioned for the US Federal Reserve's monetary policy decision.

Spot gold was flat at $2 016.28 per ounce by 08:52 GMT after rising more than 1% on Tuesday. It was trading in a narrow $7.01 range.

US gold futures GCv1 rose 0.1% to $2 025.10.

The Fed's rate decision is expected at 1800 GMT, with the likelihood of a 25-basis-point rate hike pegged at 86%. 

The central bank is also expected to signal a pause in its 14-month tightening cycle, as policymakers balance the need to slow inflation against risks ranging from bank failures to the possibility of a US debt default as soon as next month.

Gold is caught between growing anxiety over the US banking crisis, which has fuelled demand for safe-haven assets, and uncertainty over the Fed's stance, which is capping the upside, ActivTrades senior analyst Ricardo Evangelista said.

Bullion, known as a hedge against inflation and economic turbulence, gained over 1% in April amid the banking crisis. But higher rates tend to dent the zero-yield asset's appeal.

"If the Fed were to surprise with a pause, this would suggest a deepening banking crisis and would likely send gold higher," said Clifford Bennett, chief economist at ACY Securities.

Data on Tuesday showed US job openings dropped in March and layoffs increased to the highest level in more than two years, suggesting some softening in the labor market.

Difficulties surrounding a bipartisan agreement over the debt ceiling has the potential to offer further support to gold, Evangelista added.

Edited by Reuters



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