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FOMC starts two-day meeting on interest rates
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Fed widely seen raising rates by 25 bps
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Markets see no chance of another hike in June
(Updates prices)
By Deep Kaushik Vakil
May 2 (Reuters) - Gold extended gains on Tuesday and was
on track for its biggest daily rise in a month, as yields
dropped on renewed fears of contagion in the U.S. banking
sector, ahead of the Federal Reserve's widely anticipated
decision to hike interest rates.
Spot gold jumped 1.5% to $2,012.19 per ounce by 2:00
p.m. EDT (1800 GMT) after touching its highest since April 14 at
$2,019.37 earlier.
U.S. gold futures settled 1.6% higher at $2,023.30.
"The banking concerns are back... it's really removing that
risk that the Fed was going to possibly be considering a June
rate rise," said Edward Moya, senior market analyst at OANDA.
Shares of U.S. regional lenders plunged, while Treasury
yields fell as the collapse of First Republic Bank triggered investor concerns about the health of other mid-sized
lenders. Regulators seized First Republic Bank and sold its
assets to JPMorgan Chase & Co on Monday, in a deal to
resolve the largest U.S. bank failure since the 2008 financial
crisis.
The Federal Open Market Committee kicked off its two-day
meeting, where it is mostly expected to raise rates by 25 basis
points. Markets priced in about 15% odds of a rate cut in June,
seeing no chances of another hike.
While gold is considered a hedge against economic
uncertainties, rising rates hurt demand for the zero-yielding
asset.
Gold has also been supported by some safe-haven demand from
resurgent worries over the banking sector's health and U.S. debt
ceiling uncertainty, Bank of China International analyst Xiao Fu
said.
U.S. President Joe Biden on Monday summoned four top
congressional leaders to the White House next week after
Treasury Secretary Janet Yellen warned the government could run
short of cash to pay its bills by June.
Spot silver rose 1.1% to $25.25 per ounce,
platinum gained 1.2% to $1,061.99, while palladium fell 1.5% to $1,429.47.
(Reporting by Deep Vakil and Arundhati Sarkar in Bengaluru;
Editing by Shinjini Ganguli, Shailesh Kuber and Maju Samuel)
