Gold rises to $1,982.8 as investors reconsider banking crisis and stimulus Fed

Gold futures rose to a 2023 high, erasing the previous high of $1,976 reached in February. As of 4:09 PM EST, the most active April gold futures contract was up $58.10, or 3.02%, to settle at $1981.10. While the dollar’s weakness contributed to today’s dramatic rise, it was only a small factor in a much bigger picture. Given that gold futures posted a net gain of more than 3% and the dollar weakened by 0.52%, about 5/6 of gold’s gains today are directly attributable to market participants bidding higher for the yellow precious metal.

Next Tuesday, the Federal Reserve will hold its second Open Market Committee meeting of the year. This will be followed by the FOMC statement and Chairman Jerome Powell’s press conference the following day on March 22.

However, this FOMC meeting will be quite different in that there is another important factor to consider in their decision, which they will announce next Wednesday, March 22nd. While the Federal Reserve remains laser-focused on reducing inflation, remaining sticky or hawkish in many areas, they now have to consider the banking crisis that was first announced last week.

On March 10, 2023, reports began to emerge of the collapse of Silicon Valley Bank after the depositor-led bank’s solvency challenge led to today’s inevitable bankruptcy filing. SVB was unique in the sense that its main business was financing venture capitalists and start-up technology companies. To raise capital, they liquidated most of their balance sheet assets at a loss of $1.8 billion.

Immediately, the FDIC and banking regulators stepped in to guarantee that depositors’ money would be made available. Then yesterday, 11 major US banks created a $30 billion fund held at First Republic Bank to create a shield to keep banks like SVB and Bank of New York solvent. Federal banking regulators recommended the support of this large banking group because it strengthens the resilience of the US banking system.

This brings us to next week’s FOMC meeting. The Federal Reserve is expected to approve a ¼ percent interest rate hike as the banking crisis finally blocks the view that the Federal Reserve would increase its rate hikes with a ½ percent rate hike next week. Although there have been rumors that the Fed could pause, many analysts believe that the Fed must continue to raise interest rates even during the banking crisis in order to maintain its credibility.

For those who want more information, please use this link.

As always I wish you good trading,

Gary S. Wagner

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect his own Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; However, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is for informational purposes only. It is not a solicitation to make exchanges in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no responsibility for any loss and/or damage arising from the use of this publication.

Leave a Comment