Gold gets lifeline from renewed banking jitters, Powell comments

May 19 (Reuters) – Gold rallied 1% on Friday, recouping some losses from earlier this week, on renewed worries about the stability of the banking sector, while traders slashed bets for another interest rate hike following remarks from the US Federal Reserve chairman.

Spot gold gained 1.2% to USD 1,981.79 per ounce by 12:30 p.m. ET (1830 GMT). US gold futures settled 1.1% higher at USD 1,981.60.

“Gold is up more on Yellen than a cautious Powell which still suggests that June will be a ‘skip’ meeting unless data over the next few weeks is especially troublesome,” Tai Wong, a New York-based independent metals trader, said.

Shares of US regional lenders fell after CNN reported that US Treasury Secretary Janet Yellen told bank chief executives that more mergers may be necessary following a series of bank failures.

“Nothing makes the market reflexively grab for an airsick bag more than bank jitters ahead of a weekend,” Tai Wong added.

Fed Chair Jerome Powell said it was still unclear if US interest rates will need to rise further, as central bank officials balance uncertainty about the impact of past hikes on borrowing costs.

Markets now see an 82% chance of the Fed holding rates until July.

Gold was on course for its worst week since February, down about 1.5% so far, after a series of robust economic data.

“This is the week that gold really got crushed because there’s been a steady flow of that debt ceiling optimism and, in addition to that, some hawkish pushback from the Fed,” said Edward Moya, senior market analyst at OANDA.

Meanwhile, US House Republicans and President Joe Biden’s Democratic administration paused talks on raising the debt ceiling.

Silver rose 1.7% to USD 23.90 per ounce, platinum gained 1.4% to USD 1,064.09, and palladium jumped 3.8% to USD 1,508.57.

(Reporting by Deep Vakil in Bengaluru; Editing by Jan Harvey, Shilpi Majumdar and Shounak Dasgupta)