Gold prices surged by over 1% on Wednesday, settling at their highest point since early February, as a fresh crisis in the banking sector caused investors to turn away from riskier assets and seek safety in bullion. The risk aversion hitting markets was sparked by fears that the US banking crisis could spread into Europe, causing Credit Suisse shares to plummet and sparking concerns about the health of the region’s banking sector.
Gold prices continued to rise as renewed unease gripped world markets, causing Europe’s bank stocks to come under pressure. Phillip Streible, chief market strategist at Blue Line Futures in Chicago, noted that this was a “total safe-haven trade”, with investors flocking to gold in response to the mounting concerns about Credit Suisse and European banks.
Gold is traditionally viewed as a hedge against inflation, but the opportunity cost of holding the non-yielding asset increases when interest rates rise to combat inflation. With the Federal Reserve assessing data showing elevated inflation in February against the backdrop of the collapse of two regional banks, the focus remains on its next move on interest rates.
Gold settled at $1,931.3, with resistance levels at the February high of $1,960 and the $2,000 area if the yellow metal advances above $1,935. Meanwhile, short-term support levels are seen at the $1,890 zone, followed by the 20- and 100-day SMAs at $1,845 and $1,815, respectively.