RIYADH: Prices of safe-haven gold dropped on Wednesday as easing fears of a further contagion from the global banking crisis whetted appetite for riskier assets.
Spot gold was trading 0.7 percent lower at $1,960.91 per ounce, as of 0619 GMT, after rising 1 percent on Tuesday. US gold futures slipped 0.6 percent to $1,962.10.
"We've seen a natural retracement ... gold is pulling back after a failed 'bid' to break above $1,975," said Matt Simpson, senior market analyst at City Index.
But some investors "still seem to be holding onto gold 'just in case' there's another skeleton or two lurking in the closet," Simpson said.
The dollar firmed, making bullion expensive for overseas buyers. Asian shares surged on Wednesday.
While gold would "ultimately" be supported by financial uncertainty, prices could become more volatile over coming weeks if inflation and US economic data stay elevated, Simpson said.
Data on Tuesday showed US consumer confidence unexpectedly increased in March, while February's US trade deficit in goods widened modestly.
Analysts at Macquarie, in a note, said they expect the Fed to "prioritize bringing inflation back to target – with one more rate hike and then no cuts in the early stages of economic contraction," resulting in cyclically weaker gold prices through the second half of 2023.
The opportunity cost of holding non-yielding gold rises when interest rates are increased.
Markets are pricing in a 44.5 percent chance of a 25-basis-point Fed hike in May.
In contrast, MKS PAMP said in a note that "the Fed will have to choose between higher inflation, a harder landing or financial instability- all outcomes will keep safe havens in play," likely prompting gold to retest and pierce all time highs ($2,070/oz) this year.
Silver fell 0.8 percent to $23.08 per ounce, platinum lost 0.7 percent at $956.76 and palladium edged down 0.2 percent to $1,416.93.