Gold prices surged past significant levels on Wednesday, driven by safe haven buying following warnings of a potential recession by Minneapolis Federal Reserve President Neel Kashkari.
Kashkari expressed concern that rising interest rates and a slowdown in lending after the collapse of several US banks could trigger a recession this year. This statement, coupled with anticipation of US economic cues later in the day, increased demand for safe haven assets.
The Fed aims to control high inflation by hiking interest rates. The minutes of the central bank’s latest meeting, due on Wednesday, are expected to provide more clarity on this stance.
The consumer price index inflation data for March, which is likely to have eased, and core inflation, which is expected to remain high, may lead to increased price pressures.
Gold prices have risen steadily since early March, owing to increased expectations that the Fed has limited headroom to continue raising interest rates. Spot gold rose 0.5% to $2,013.33 an ounce, while gold futures climbed 0.5% to $2,028.25 an ounce by 21:46 ET (01:46 GMT). Both instruments are now roughly $60 away from their 2020 record high.
A possible US recession has boosted safe haven demand for gold. A pause in the Fed’s rate hike cycle bodes well for gold and other non-yielding assets as it entails a lower opportunity cost for holding such assets.
As a result, the dollar retreated further against a basket of currencies on Wednesday, while Treasury yields fell in overnight trade.
Other precious metals saw strong gains on Wednesday, with platinum futures up 0.6% at $1,010.80 an ounce, while silver futures shot up 2.1% to $25.475 an ounce. In contrast, industrial metals, including copper, experienced a decline due to growing fears of a recession.
Copper futures were muted at $4.0297 a pound, under pressure from more signs that China’s economic rebound was losing steam. Traders are largely averse to copper due to slowing global manufacturing activity, and this trend is expected to continue in the near-term as economic conditions worsen.