March 20 (Reuters) - Gold prices backed off from the key $2,000 mark in a volatile trade on Monday as investors assess the health of the global banking sector even as increasing bets of a rate pause by the Federal Reserve kept bullion near its one-year peak.
Spot gold was down 0.6% at $1,976.60 per ounce, as of 1318 GMT, while U.S. gold futures rose 0.5% to $1,983.20.
Prices fell over 1% before climbing by the same amount to the metal's highest level since March 2022 at $2,009.59, just shy of a record set during the onset of the pandemic.
"Gold's volatility reflects that the market is digesting the recent shotgun wedding between Credit Suisse and UBS and the possible contagion," said independent analyst Ross Norman.
Prices have rallied more than $100 after the collapse of U.S.-based Silicon Valley Bank earlier this month, which ensnared 167-year-old lender Credit Suisse.
Europe's bank shares fought back from an early slump led by UBS Group's rescue deal to buy Credit Suisse failed to assuage market fears of a global banking contagion, sending their shares sharply lower.
Investors will keenly watch a Fed policy decision due on Wednesday. Traders are now pricing in a 49% chance of the Fed holding rates in the current range.
Gold is considered a safe-haven asset during times of financial uncertainty and lower interest rates reduce the opportunity cost of holding the non-yielding bullion, making it more attractive.
"Today’s rejection above $2000 may trigger some profit taking, but in our opinion not a change in direction," Ole Hansen, head of commodity strategy at Saxo Bank, said in a note.
"We maintain a bullish outlook for gold, especially if the FOMC, driven by the current banking and liquidity crisis, is forced to change its focus away from fighting inflation to maintaining stability."
Spot silver dipped 1.2% to $22.32 per ounce. Platinum rose 1.3% to $988.89 and palladium was 1.4% lower at $1,399.24.
