Gold prices hold above $1,900 as CPI data looms

Gold prices stuck to a near six-week high on Tuesday as concerns over a U.S. banking crisis saw investors scramble for traditional safe havens, with focus now turning to upcoming inflation data for more cues on monetary policy.

Prices of the yellow metal rallied over $100 in the past five days as the shutdown of three U.S. banks, most notably Silicon Valley Bank – underscored the growing cracks in the U.S. economy caused by a sharp rise in interest rates over the past year.

While the U.S. government intervened to restore faith in the banking system, bank stocks saw heavy outflows on fears of potential contagion, which fed safe haven demand for gold.

But the prospect of a banking crisis also spurred bets that the Federal Reserve will be forced into toning down its hawkish stance in order to prevent further economic destruction. This weighed heavily on the dollar and short-term Treasury yields, which in turn greatly benefited gold.

Spot gold was flat at $1,913.76 an ounce, while gold futures rose 0.1% to $1,918.75 an ounce by 20:54 ET (00:54 GMT). Both instruments were trading close to their highest levels for the year.

Focus is now on consumer price index inflation data for February, due later in the day. The index is expected to have eased slightly from the prior month, although core inflation is expected to remain the same.

The Fed had warned last week that sticky inflation could spur more aggressive tightening measures by the bank. But in the face of a potential banking crisis, the central bank’s path remains uncertain.

Fed Fund futures prices now show that markets have completely ruled out the possibility of a 50 basis point hike next week, with a majority of traders now expecting the bank to raise rates by a smaller 25 basis points. But a portion of traders also expects the Fed to hold rates at 4.50% to 4.75%.

High interest rates had battered gold through 2022, as rising yields pushed up the cost of holding non-yielding assets. But a reversal, or potential easing in the Fed’s hawkish stance, could benefit the yellow metal.

Other precious metals retreated on Tuesday after logging sharp gains over the past four sessions. Silver futures fell 0.3%, while platinum futures shed 0.5%.

Among industrial metals, copper prices were muted as markets weighed less pressure from the dollar against the growing prospect of an economic slowdown this year.

Copper futures were flat at $4.0385 a pound, after moving little in recent sessions.