- Wall Street’s major indices dropped due to PacWest’s decision to look into strategic options.
- Investors are worried about the health of local US banks.
- High prices have reduced demand for gold in prestigious Asian retail hubs.
On Thursday, gold continued its remarkable surge, supported by predictions for a pause in US rate hikes as US banking fears intensified a flight to the safe-haven metal.
Wall Street dropped due to PacWest’s decision to look into strategic options. The news increased worries about the health of local banks and countered the optimism about a potential slowdown in Fed rate hikes.
Bob Haberkorn, a senior market strategist at RJO Futures, claimed that the same flight to safety buying that helped drive gold above $2,000 was still at play in this market.
Low-interest rates and economic instability increase demand for zero-yield bullion.
The Fed Funds target rate is now between 5% and 5.25%, and markets anticipate rate cuts in the second half of the year.
The US central bank boosted its benchmark overnight rate by 25 basis points, as financial markets had expected. However, its policy statement did not include language indicating that it “anticipates” the need for further rate increases.
On the physical markets, High prices have reduced demand for gold in prestigious Asian retail hubs. Retail shoppers are avoiding rings, earrings, and necklaces because gold prices are just off their peaks from 2020.
The prices have been driven higher by safe-haven investors seeking solace amid economic fears and banking troubles in the US and Europe.
However, there are worries that the rise in gold prices will stall without that support from the general public. Especially now that central banks have increased interest rates to their highest levels in years. High rates lessens the appeal of holding non-yielding bullion.
According to India Bullion and Jewellers Association Ltd. President Prithviraj Kothari, Indian and Chinese physical demand is essential to maintain a surge in global prices. Without it, there would be a natural ceiling on how much prices could increase.
According to Debajit Saha, an analyst at Refinitiv Metals Research, investment and jewelry consumption in China and India made up 48% of all global retail demand in 2022.
Due to the pressure from price hikes and increasing bank interest rates, Indian demand has been between 30% and 40% lower than average in 2023.