Within a few days, three banks went bankrupt in the US. The FDIC and the Fed are trying to nip a new financial crisis in the bud. Against this background, the world price of gold is growing.
On Monday, the price of gold on the spot market was quoted at $1,878 per ounce, which corresponds to 1,754 euros. Thus, gold has risen in price by another 0.6% in dollar terms, after the price rose by 2% last Friday. In contrast, the price of gold in euros remained virtually unchanged due to the strengthening of the European currency. Meanwhile, silver rose 1.1% to $20.76 in the morning, equivalent to €19.37 (+0.5%).
This week we will see how the banking industry will digest a series of bankruptcies that have disturbed the calm in the markets since the end of last week and strengthened the price of gold. Indeed, in addition to the death of the crypto-bank Silvergate Capital and Silicon Valley Bank, the FDIC closed another bank over the weekend. New York-based Signature Bridge Bank, which had $82.6 billion in customer deposits at the end of 2022, has been turned over to a rescue company under the auspices of the FDIC.
In the meantime, the relevant authorities in the US, including the Fed and the US Treasury, have taken steps to prevent a possible "domino effect" in the US banking industry. They stated that all deposits of affected bank customers would be kept. In addition, the Fed announced that all securities that can be used as collateral against Central Bank money will be accepted as assets at 100%, and not just at their current market value. This is a promising way to provide liquidity in the banking sector.
This week there are other dates that may affect the price of gold. On Tuesday, the US inflation rate for February will be announced. Analysts expect 6% annual inflation, after 6.4% in the previous month.
On Wednesday afternoon, the US will publish data on retail sales and producer prices for February. In addition, the next decision on interest rates must be made in Europe. On Thursday, the European Central Bank (ECB) will announce the results of its latest monetary policy meeting.
Prospects for gold
Due to the recent turmoil in the US banking sector, the demand for "defensive" investments has also increased. This is explained by the fact that, in addition to the price of gold, bond prices also rose. Accordingly, the yield on 10-year US government bonds fell: on Monday morning it returned to 3.7%. At the same time, the US dollar weakened.
The price of gold may also continue to benefit from these developments. But if the problems disappear quickly and there are no more bank failures, the markets could move quickly in the opposite direction again. However, according to analysts, the overall uncertainty in the financial markets is likely to continue, given the inflated prices of many assets that have taken place in recent years.
European bank stocks tumbled on Monday, while European bond yields tumbled amid the collapse of Silicon Valley Bank (SVB). This could force the central banks of the Western world to either slow down their pace of rate hikes or even reverse course if more regional banks fail, according to Zerohedge.
Shares of Credit Suisse Group AG, traded in Switzerland, fell 15% to hit a record low. The fall was driven by concerns about the bank's ability to recover customer funds, restore its investment banking operations and deal with ongoing legal and regulatory investigations..
Selling pressure returned to Credit Suisse shares due to the unexpected collapse of the US bank SVB, which immediately caused a crisis of confidence in the entire Western banking sector. As a result, the five-year credit default swaps of the Zurich-based credit institution rose to a record high of 448 basis points, according to data compiled by Bloomberg.