Gold is on a bullish run amid the collapse of three U.S. banks, two of which are regarded as the second and third largest banking collapse in U.S history.
The flight towards Gold is a result of the lack of investor confidence in the U.S. banking system and the view of Gold as a safe haven asset to turn to in times of economic uncertainty.
Despite the fact that U.S. regulators have acted and the Biden administration and President Biden himself have assured there won’t be another banking debacle in the U.S. to trigger a financial crisis relapse. But skittish investors looking for safe havens still ploughed into gold regardless of the assurances on Monday, sending the yellow metal’s prices to six-month highs.
The front-month April gold futures contract on New York’s Comex settled at $1,916.40 an ounce, up $49.30, or 2.6%. The session high was $1,918.20, a peak since the $1,959.10 registered in February 2023. The spot price of gold, more closely followed than futures by some traders, was at $1,905.38, up $38.14, or 2.04% on the day. The session high for spot gold was $1,913.13.
Spot gold could see some correction before climbing further in the near term, possibly to $1,928, ahead of Tuesday’s key Consumer Price Index, or inflation, reading which will likely decide whether the Federal Reserve goes with a 25-basis-point, or 50 bps, hike at its March 22 rate decision.
What You should know: The latest U.S. banking crisis unfolded after investors at California-based Silicon Valley Bank yanked $42 billion in deposits from Silicon Valley Bank, or SVB, which according to the FDIC, is one of the top 20 American commercial banks. SVB is the largest US lender to fail since Washington Mutual collapsed in 2008 at the height of the financial crisis then.
SVB provided financing for almost half of US venture-backed technology and healthcare companies. At the end of 2022, the bank said it had $151.5B in uninsured deposits, $137.6B of which was held by US depositors. Its total assets as of the end of last year were $209B.The FDIC also took control of Signature, which had $110.36B in assets and $88.59B in deposits at the end of last year, according to New York state’s Department of Financial Services.
Due to the efforts of regulators, banking stocks worldwide are taking a beating. First Republic Bank tumble 65.1% despite news it had secured fresh financing, while Western Alliance Bancorp, PacWest Bancorp, and Charles Schwab fell 75.9%, 41.0% and 19%, respectively. Big U.S. banks including JP Morgan Chase, Morgan Stanley and Bank of America also fell.
The SVB shockwaves were felt in Europe too, where the STOXX banking index was down 6.3% in its largest one-day fall in more than a year. Germany’s Commerzbank fell as much as 12.7%, while Credit Suisse hit a new record low after falling 15%. Swiss financial regulator FINMA said it was closely monitoring the banks and insurers it oversees and looking for signs of contagion from the collapse of SVB and Signature.
The CPI is expected to have expanded 6% year-on-year in February from 6.4% in January and 0.4% for the month versus a previous 0.5%. Core CPI, a reading that strips out volatile food and energy prices, is forecast to have risen 5.5% for the year to February from the previous annual reading of 5.6%. Month-on-month, the core number is expected to be flat at 0.4%.
Since the crisis broke, both regulators and the banking industry were working to contain it, reports said. The bank, viewed as the next to fall, First Republic, secured additional financing from JPMorgan Chase & Co, at the weekend, resulting in $70B in unused liquidity, firepower it could use to respond to potential customer withdrawals.
What they are saying: President Biden told reporters at the White House that the government will ensure the bank deposits of Americans remain safe and the country does not experience another financial crisis. He stated, “No losses of a dime … No losses will be borne by the taxpayers. The money will come from the fees that banks pay to the Federal Deposit Insurance [Corporation, or FDIC]. Because of the actions taken by regulators, every American should feel confident, their deposits will be there if and when they need them.”
Biden also said he was going to request Congress to review and strengthen post-financial crisis banking laws that were loosened by the previous administration, “to make sure that the crisis we saw in 2008 would not happen again.”Biden explained that the FDIC protection for depositors at SVB and Signature will not be extended to investors and the management at the collapsed banks, which he accused of excessive risk-taking.
- He then stated this: “The management of these banks will be fired. If the bank is taken over by FDIC, the people running the bank should not work there anymore. Investors in the banks will not be protected. They knowingly took a risk and when the risk didn’t pay off, investors lose their money. That’s how capitalism works and so forth. But there are very important questions about how these banks got into the circumstances. In the first place, we must get the full accounting of what happened and why those responsible can be held accountable.”
- Analyst and author, Jim Wyckoff, said on the website of precious metals dealer Kitco that “Trader and investor anxiety is elevated to start the trading week, following a turbulent weekend in the wake of late last week’s collapse of Silicon Valley Bank.”
- Sunil Kumar Dixit, the chief technical strategist at SKCharting.com, stated, “The SVB crisis has brought charm back to gold but, pending the CPI release, a correction might be on the deck.” Dixit further said spot gold’s RSI, or Relative Strength Index, on a four-hour timeframe, becomes overbought at 81, calling for some pullback toward the support areas of $1,868, below, which could trigger further correction toward $1,855 and $1,842. “After retesting the breakout zone of $1,868 or bit lower, resumption of the uptrend may reach $1,928, followed by major resistance at $,1968.”
