Gold Prices Dip as Dollar Strengthens Amid Banking Concerns and Fed Policies

Posted Monday, March 27, 2023 by
Arslan Butt • 2 min read
 GOLD prices experienced a decline on Friday as the dollar gained against most major counterparts, with markets evaluating the ongoing banking crisis and the Federal Reserve’s strategies.

Lingering Banking Worries

The banking sector’s concerns intensified following a sudden rise in the cost of insuring Deutsche Bank’s debt. European banking stocks collectively dropped in today’s European markets, fueling apprehensions about the crisis’s persistence. Deutsche Bank’s stock listed on the New York Exchange decreased by 6.75% to $9, while experiencing over a 9% decline on the Frankfurt Exchange.

Economic Data Highlights

In February, US durable goods orders dropped 1% for the second consecutive month, missing the predicted 0.4% growth. Core orders, which exclude transportation, remained unchanged, falling short of the anticipated 0.2% increase. The US manufacturing PMI climbed to 49.3 this month from 47.3 in February, surpassing the expected 47. The services PMI increased to 53.8 this month from 50.6 in the previous reading.

The Federal Reserve’s Stance

The Federal Reserve increased interest rates by 25 basis points to 5%, the highest level since mid-2007. The Fed removed the statement regarding the need for ongoing rate hikes, opting for the phrase “some more tightening” might be suitable. The Fed also maintained a neutral interest rate outlook of 5.25% for 2023, setting the stage for another rate hike this year.
Fed Chair Jerome Powell stated that the Fed would take the “necessary” steps to bring inflation back to 2%, including an additional rate hike if required. Powell mentioned that US growth had been affected by higher interest rates, while the labor market remained robust and unemployment low. He emphasized that the Fed was collaborating with the US Treasury Department to examine the banking system, ensure its strength, and safeguard deposits. Lastly, Powell indicated that it was improbable for the Fed to reduce interest rates this year, but a rate increase was possible.

In conclusion, the dollar index rose by 0.6% as of 18:39 GMT to 103.1, with a session high of 103.3 and a low of 102.5. GOLD spot prices fell by 0.8% or $16.30 to $1,979 an ounce as of 18:39 GMT, while registering a 0.5% gain this week.

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