Gold prices passed US$2,000 for the first time in more than a year on Monday as UBS's recent takeover of its Swiss rival Credit Suisse for $3.2 billion failed to assure investors about ongoing bank woes.
After rising $68 on Friday, spot gold prices eased slightly early Monday, but later rose sharply by $50 to peak at $2,010 late in the day as the banking crisis in the US and Europe triggered purchases of safer or alternative assets, especially gold.
UBS bought the 167-year-old Credit Suisse over the weekend in a deal backed by the Swiss authorities to prevent a disorderly collapse.
The Federal Reserve joined the Bank of Canada, Bank of England, Bank of Japan, European Central Bank and Swiss National Bank in a coordinated action to enhance the provision of liquidity through standing US dollar swap line arrangements.
Disturbances in the banking sector, which have threatened to spill over into the rest of the economy, underpinned safe haven demand for gold in recent weeks.
With short-term volatility, analysts predict gold prices have resistance at $1,990 to $2,013.
"With the turmoil surrounding the banking sector in the West, I think gold prices will remain volatile in the short term, possibly increasing further if the Fed keeps the rate unchanged or increases it by 0.25% on Wednesday," said Jitti Tangsithpakdi, president of the Gold Traders Association.
Warut Rungkum, director of money analysts at YLG Bullion, agreed that ongoing banking woes are unlikely to resolve soon as Moody's Investors Service recently placed six US banks on review for potential credit rating downgrades in the wake of last week's collapse of Silicon Valley Bank.
Citing the CME FedWatch Tool, Fed funds futures recently had a 62% chance of a rate hike and 38% odds of a pause, said Mr Warut.
Meanwhile, most Asian stocks suffered further declines from last week in trade on Monday. Hong Kong's Hang Seng Index posted the biggest dip, falling 2.65% as HSBC and other lenders tumbled.
Japan's Nikkei lost 1.4% while the Shanghai Composite and Shenzhen Components also edged down.
In Australia, the S&P/ASX 200 decreased by 1.38%.
KGI Securities said despite increasing risks in the banking sector, the Federal Open Market Committee could still lift the federal funds rate 0.25% to 4.75-5.00% at its meeting later this week.
The labour market is considered too strong and wages too high despite a slowdown, while inflation remains stubborn, which could support a rate hike this week, Pragrom Pathomboorn, an analyst with KGI Securities, said in a research paper on Monday.
There is a chance for another 0.25% hike to 5.00-5.25% at the May 2-3 meeting, which could be the last rate increase in the cycle, he said.
"Turmoil in the banking sector is viewed as specific to individual cases that lack liquidity, not widespread like the 2008 economic crisis," said Mr Pragrom.
"A domino effect is unlikely, but several more banks could fail."
The Stock Exchange of Thailand Index closed on Monday at 1,555.45 points, down 0.53%, in trade worth 62.8 billion baht.