Gold quotes are rising against the backdrop of problems in the banking sector in the US and Europe and the collapse of shares in the financial sector
The cost of the April futures for gold at the New York Mercantile Exchange (COMEX) increased by 1.52% and reached $2003.4, according to trading data. Gold is trading above $2,000 for the first time since April 18, 2022.
The precious metal rises in price against the background of the crisis in the banking sector in the US and Europe and the collapse of shares of financial companies.
“Gold has historically enjoyed a reputation as a defensive asset. When the markets are turbulent, investors often start buying gold. Thus, the demand for the precious metal is increasing, and its price is growing, ”explained analysts at BCS World of Investments.
Among the main reasons for the rise in metal prices, experts named the difficult situation in the US banking sector, which is forcing the Fed to slow down the pace of tightening monetary policy. Central banks of other countries may take a similar step. In this case, this may lead to a decrease in pressure on inflation and, as a result, will become a positive background for gold. The slowdown in the increase in interest rates will also reduce the yield of treasury bonds, which is also a positive signal for the metal, experts say.
The crisis in the banking sector was triggered by the bankruptcy of the California bank Silicon Valley Bank and the closure of Signature Bank.
In March, SVB Financial (the holding company of Silicon Valley Bank) announced an emergency sale of $21 billion in bonds from its portfolio, resulting in a loss of $1.8 billion. failed to raise funds. After reporting a multibillion-dollar loss, SVB Financial shares collapsed by 60%, then trading was stopped.
On March 11, Silicon Valley Bank, which was the 16th largest bank in the US, filed for bankruptcy. The collapse of the SVB is the largest bankruptcy in the US banking sector since 2008.
This was followed by a massive sale of bank shares not only in the US, but also in Europe and Asia. Following Silicon Valley Bank, Signature Bank was closed on March 13 due to systemic risks.
“Mid-term expectations for gold are moderately positive. It cannot be ruled out that after fixing above $2,000, the rise will accelerate. We allow movement to $2100–2200,” experts write.
Fears of a looming banking crisis eased somewhat after Swiss bank Credit Suisse Group AG (SIX: CSGN) said it would draw on a $54 billion credit line from the Swiss National Bank to maintain its liquidity.
Fears that more US and European banks will collapse in a domino effect have sparked a sharp rally in gold prices this week as investors turned to traditional safe havens in the face of the global economic crisis.
But investors have used Credit Suisse's funding news to lock in some recent gains from the yellow metal, while uncertainty over US monetary policy has also contributed to some of the dollar's strength.
Prospects for gold
After all, the time has not yet come. Even if every storm starts with a gust of wind. The Fed has at least a little more leeway to cut interest rates again and calm the markets. As in 2008, it is important to prevent large-scale bank failures.
However, if the state and the Central Banks are forced to go on another rescue of banks, then the beginning of a new phase of "growth and fall" will be a foregone conclusion. After all, the shortcomings of the credit monetary and financial system have not been eliminated since the abandonment of the Gold Standard in the early 1970s. Everything will be repeated anew, as it was after the next financial crisis in previous years. The price of gold is likely to rise a notch again, but a temporary decline in the precious metal is not ruled out, as was already the case during the short-term liquidity crisis in 2008.
One can only hope that the big crash will not happen soon, otherwise a complete reorganization of the monetary and financial system will be required. But once again it becomes clear how important it is to hedge against a collapse with the help of real tangible assets. This includes physical gold.