On March 10, local time, the Federal Deposit Insurance Corporation (FDIC) issued a statement stating that the California Department of Financial Protection and Innovation (DFPI) announced the closure of Silicon Valley Bank, the largest bank failure since the financial crisis. On the afternoon of March 12 local time, the U.S. Treasury Department, the U.S. Federal Reserve Board, and the U.S. Federal Deposit Insurance Corporation issued a joint statement announcing the closure of Signature Bank on the grounds of “systemic risk”. This is the second U.S. financial institution to be shut down within three days, following Silicon Valley Bank.
Gold gets a lift as U.S. banking risks boost market risk aversion
Gold has once again become a safe-haven trade, extending gains on March 13 and currently trading around $1,879.75 as investors piled into the market following the closure of the two banks.。
The closure of Silicon Valley Bank, one of the leading tech financiers, shows that the Federal Reserve’s aggressive cycle of rate hikes to fight inflation can have unintended consequences, analysts said. The concern is that problems at the start-up-focused lender could spill over to other markets around the world.
According to the latest news from CNBC and other US media, on the 12th local time, US regulators announced the closure of Signature Bank on the grounds of “systemic risk”. According to CNBC,
Edward Moya, senior market analyst at OANDA, said: “Gold saw safe-haven flows amid concerns over financial instability.Startups and debt refinancing are among the biggest financial risks traders are analyzing. “
It’s a dramatic turnaround for gold. Gold prices fell steadily earlier in the week on expectations that the U.S. Federal Reserve will raise interest rates by 50 basis points at its March meeting. However, gold is now rebounding,Reacting to several drivers: Silicon Valley Bank events and financial stability risks, higher U.S. unemployment in February, and a reversal in expectations for a 50bp rate hike by the Fed。
Moya added: “Gold is everyone’s favorite trade once again, and that’s likely to continue as Wall Street’s liquidity risk issues won’t be answered anytime soon.”
One thing to keep in mind is how long this move in gold can last, said Everett Millman, a mint precious metals expert in Gainesville. “It’s basically a short-term reaction, and you do see fits and starts of safe-haven demand,” Millman said. “There are concerns about the stability of the banking system, the dollar has fallen sharply, and that’s driving gold higher in the short-term.”
The market is concerned about the US inflation in February, and the Fed’s interest rate hike in March is expected to cool down
As for whether the price of gold can be maintained at the current level this week, we need to observe the data, especially the specific situation of the CPI data in the United States in February. Millman said: “I don’t think gold prices have bottomed out yet, and there may be further declines in the first half of this year. I would not be surprised if gold prices hover in the $1,800-$1,900 range.
He noted that trading has been very volatile,With the inflation report on the horizon, the key thing to watch is how markets react to the data and the data itself. He said: “The CPI data itself is not as important as the market’s reaction to it. There is often some disagreement about whether certain data or comments from the Fed are dovish or hawkish. The Fed will also focus on how the market reacts and digests CPI. “
The general consensus in the market is that the annual rate of CPI in the United States will slow down from 6.4% to 6% in February without seasonal adjustment.
In the latest news, Goldman Sachs said it no longer expects the Federal Reserve to announce a rate hike at its March 22 meeting given recent stress in the U.S. banking system. However, Goldman Sachs maintained its forecast that the Fed will raise interest rates by 25 basis points in May, June and July, and now expects a terminal rate of 5.25-5.5%.
Goldman Sachs expects the U.S. regulator’s measures to provide substantial liquidity to banks facing deposit outflows and improve depositor confidence.
Commonwealth Bank of Australia (CBA) said that the foreign exchange market is still digesting all the news related to the collapse of the Silicon Valley bank. Considering all the measures taken by the authorities, markets should calm down, at least for now, but the USD and JPY could easily rally again if the state of regional banks is a concern.
Carol Kong, currency strategist at Commonwealth Bank of Australia (CBA), said the Fed is still concerned about inflation, which has not really slowed down; tomorrow’s US CPI data will show that inflation remains stubbornly high.However, given what is happening in the US financial system, a 25 basis point hike is more likely than a 50 basis point hike.
Based on the above news, it can be seen that with the outbreak of the US banking crisis, the Fed’s interest rate hike expectations have cooled, and Goldman Sachs even predicts that the Fed will not raise interest rates in March. This will limit the dollar’s gains and boost gold. Investors need to keep an eye on this.
Spot gold daily chart
At 13:23 on March 13, Beijing time, spot gold was quoted at $1879.56 per ounce