By Geoffrey Smith
Investing.com -- Gold prices topped $2,000 for the first time in 11 months on Monday, as the collapse of Credit Suisse (SIX:CSGN) stoked fears of wider financial instability and drove investors to haven assets.
Gold futures in Europe rose as high as $2,014.90 an ounce, before retracing to be at $1,990.65/oz by 06:00 ET (10:00 GMT), up 0.7% on the day.
Haven assets such as bullion have performed strongly in the last three weeks, as three mid-size U.S. banks have collapsed, followed by Credit Suisse, a bank deemed by regulators to be a Global Systemically Important Bank (G-SIB). Credit Suisse is by far the largest bank to collapse in the last decade.
The rise in financial stability has convinced a growing number of investors that central banks will have to halt their interest rate hikes, for fear of triggering a broader financial sector crisis. That has brought bond yields down sharply, raising the relative attractiveness of gold, which doesn't bear interest.
Two-year bond yields, which are typically sensitive to interest rate expectations, extended their sharp drop in morning trading in Europe. By 05:00 ET. the benchmark 2-year Treasury note was down 9 basis points to 3.76%. It's now fallen 1.3 percent in the last two weeks. In Europe, meanwhile, the 2-year German note yield was down 20 basis points at 2.24%. It has fallen 1.2 percent since concerns about banks in the U.S. and Europe started to take center stage.
Analysts at ANZ said on Monday that gold should be able to defend its current level until the end of the year, as a slowing global economy and falling interest rates combine to support appetite for havens.
In the short term, however, they note that "recalibration of market expectations around the Fed Funds rate could keep gold prices volatile." While a dip to $1,800/oz is possible, they argued, "Any dips below this should be short-lived, as opportunistic buying would likely emerge."