Gold prices hit a one-month high on Monday, recovering sharply from recent losses as markets bet that a burgeoning banking crisis in the U.S. will push the Federal Reserve into softening its hawkish rhetoric in the coming days. The dollar fell sharply against a basket of currencies, while an inversion in the yield curve lessened after the failure of Silicon Valley Bank (NASDAQ:SIVB) saw markets reassess their outlook for U.S. interest rates, as U.S. regulators rushed to restore faith in the banking system. Fed Fund futures prices show that a majority of traders now expect a 25 basis point hike by the Fed this month, following initial expectations for a 50 bps hike. This in turn benefited gold prices with the prospect of less severe interest rate hikes in the coming months. Spot gold jumped 0.6% to $1,878.92 an ounce, while gold futures surged 0.9% to $1,883.25 an ounce by 21:06 ET (02:06 GMT). Over the weekend, the Fed rolled out emergency measures to make borrowing easier for embattled banks. The White House also assured Silicon Valley Bank depositors that it will cover all withdrawals.

“It Looks For Now As if The Fed’s Rapid Action May Have Forestalled A Larger Problem.

What it also does, is make a 50bps rate hike at the March FOMC meeting look fairly unlikely,” analysts at ING wrote in a note. Silicon Valley Bank’s failure highlight the deepening cracks in the U.S. economy caused by a rapid increase in interest rates. The Fed had embarked on its most hawkish hiking spree in over 50 years to curb runaway inflation. But this weighed heavily on metal markets, as rising yields drove up the opportunity cost of holding non-yielding assets. Still, the prospect of a less hawkish Fed spurred broader gains in metal prices. Data showing an easing in wage growth also helped calm markets over a hawkish Fed. Focus is now on Tuesday’s consumer price index reading for more cues on inflation. Platinum futures rose 0.1% to $966.35 an ounce, while silver futures surged 1.2% to $20.750 an ounce. Both metals gained sharply on Friday. Among industrial metals, copper prices also advanced as optimism over a less hawkish Fed saw traders largely look past weak economic trends in major importer China.