Gold's crisis-driven surge halted by rising U.S. bond yields

Two Argor-Heraeus SA 250 gram gold bars at Solar Capital Gold Zrt. arranged in Budapest, Hungary, on Tuesday, March 22, 2022. 
Akos Stiller | Bloomberg | Getty Images

Gold fell on Tuesday as a rise in Treasury yields took the shine off bullion's recent rise that was driven by the U.S. banking crisis, while an uptick in U.S. inflation in February raised more questions than answers on interest rates.

Spot gold fell 0.2% to $1,909.55 per ounce. U.S. gold futures dropped 0.3% to settle at $1,910.90.

Higher benchmark U.S. 10-year Treasury yields weigh on zero-yielding gold's appeal.

Gold showed little reaction to U.S. Consumer Price Index (CPI) data, which showed a 0.4% rise on a monthly basis in February, as expected, after accelerating 0.5% in January.

"There is nothing in the print to scare off gold bulls who're searching for financial instability hedges at a time where the Fed may (indirectly) accept that inflation will stay higher for longer," said Nicky Shiels, head of metals strategy at MKS PAMP SA.

Traders are now largely expecting only a 25-basis-point interest rate hike by the U.S. central bank this month.

Considered a hedge against economic uncertainties, gold becomes a more attractive bet in a low interest-rate environment.

Bullion prices rallied more than 2% in the previous two sessions as investors sought cover after the collapse of U.S. lender Silicon Valley Bank (SVB) spooked the market.

"As long as the contagion risks stemming from the ongoing SVB saga remain, potentially ramping up recession risks along the way, safe-haven assets are set to remain well bid in the interim," said Han Tan, chief market analyst at Exinity.

"We expect a greater-than-even chance of spot gold staying above the psychologically important $1,900 in the lead-up to next week's FOMC meeting, provided that the U.S. dollar remains subdued and risk-off mode remains in place," Tan said, referring to the central bank's Federal Open Market Committee.

Spot silver rose 0.6% to $21.94 per ounce and platinum lost 1% to $986.17, while palladium rose 1.2% to $1,490.43.