Risk appetite improves, pressuring safe haven demand

Fading banking turmoil fears contribute to golds decline

By Laila Eid | @Laila Eid | 30 March 2023

  • Gold prices are under pressure due to the improved investor sentiment and diminishing fears of recent banking crises

  • The Bank of Canada confirms full support in case of any further pressure on the banking sector

  • The US dollar index is experiencing significant fluctuations, and pressure is increasing due to expectations of the end of the monetary tightening cycle and fears of a recession

Gold prices

As investor sentiment improves and fears surrounding banking crises that affected some banks in the United States and Europe fade, demand for the precious metal as a safe haven declines. This is coinciding with limited gains seen by the US dollar index. Gold prices witnessed a significant decline during yesterday's trading, but began trading today with a slight increase, hovering close to the $1967 per ounce mark.

As markets await important economic data on Friday, The Personal Consumption Expenditures Index - which is the Federal Reserve's preferred index - will provide further clarification on the path of future monetary policy by the Fed.

Bank of Canada Ready to Support Banking Sector under Pressure

The Bank of Canada confirms its full support to intervene if the banking system faces any further pressure. However, the bank emphasized that it would only provide liquidity support in extreme cases.

Bank of Canada Deputy Governor Tony Gravelle stated that the bank is prepared to act if severe market pressures arise. He also noted that the pressures facing the banking sector in the United States and Europe appear to be under control at present. This is the first time the Bank of Canada has commented on the recent banking crises.

Earlier this month, the Bank of Canada decided to maintain interest rates at their current level of 0.50%, marking the first time the bank has halted interest rate hikes after raising rates eight times during the year to combat inflation.

Despite the noticeable improvement in inflation indicators, prices remain well above the bank's target range.

Dollar prices

Despite positive US consumer confidence data that exceeded expectations, the US dollar index has experienced significant fluctuations since the beginning of the week due to diminishing fears surrounding recent banking crises. Investors are also waiting for the release of the Federal Reserve's preferred inflation index on Friday.

Federal Reserve member Philip Jefferson stated that inflation is clearly declining due to monetary policy tightening and will soon return to the required level of 2%. The pressure on the performance of the US dollar is increasing as expectations grow about the end of the monetary tightening cycle amid fears of a recession.

Today, the US dollar index is experiencing significant fluctuations and is trading near 102.55.