US banking crisis triggered rally in gold

Gold edged lower in Asia after surging more than 5% over the three previous sessions as the collapse of a major US bank spurred a flight to haven assets.

The failure of Silicon Valley Bank, combined with a sharp drop in Treasury yields and dollar weakness, has been a boon for bullion. Its 2.4% jump on Monday was the largest since November. The greenback rose for the first time in four sessions on Tuesday, weighing on the precious metal.

As well as the banking crisis, gold is drawing support from fresh expectations the Federal Reserve will be forced to temper aggressive monetary tightening due to risks emanating from SVB. US 10-year bond yields have fallen more than 40 basis points since Wednesday, a positive for non-interest bearing bullion.

Drivers for gold include "concerns about potential systemic risk" as potential deflationary and recessionary risks mount, Citigroupanalysts including Aakash Doshi said in a note.

The possibility of more trouble for the global economy also piled pressure on industrial metals, which joined the flight from risk assets. Zinc is heading for its lowest close since November, while copper also retreated.

Traders will be closely watching US inflation data due later Tuesday, with the market now expecting the banking-sector turmoil will prompt the Fed to implement a quarter-point hike at its March 21-22 policy meeting, rather than return to a half-point increase.

While the CPI data "remains critical, we view recent market events as more structurally supportive for gold prices," Citigroup’s Doshi said in the note.

Spot gold dropped 0.6% to $1,902.74 an ounce as of 1:40 p.m. in Shanghai and the Bloomberg Dollar Spot Index rose 0.2%. Copper fell 1.2% and zinc was down 0.5%.

Silver fell after surging 6.2% on Monday, while platinum and palladium also dropped.-Fin24