On Monday (March 13), spot gold rose to a new high of $1,894.11 an ounce since February 3, as U.S. bond yields plummeted, and uncertainty caused by the collapse of Silicon Valley banks prompted investors to seek hedging and bet on the Federal Reserve It may be difficult to re-accelerate rate hikes in July, and the possibility of rate cuts within the year is not ruled out.
At 20:12 Beijing time, spot gold rose 1.3% to $1,887.92 an ounce; the main COMEX gold futures contract rose 1.37% to $1,893.3 an ounce; the U.S. dollar index fell 0.43% to 104.193.
California banking regulators shut down Silicon Valley Bank on Friday (March 10), and New York-based Signature Bank was shut down two days later on Sunday (March 12) when the Federal Deposit Insurance Corporation (FDIC) took control of New York-based Signature Bank.
It was the biggest failure of a U.S. bank since the 2008 financial crisis.The U.S. dollar index fell to a new low of 103.672 since February 16, and the U.S. 2-year Treasury yield fell by 800 basis points in the last two trading days. The fall in U.S. Treasury yields has allowed gold to show some strong upward momentum, with prices sensitive to the yield curve, especially the short-term yield curve.
As the Fed hikes rates, the value of long-term bonds that SVB collected during the Fed’s ultra-low interest rate regime continues to decline. As borrowing costs rose, start-ups began withdrawing funds held by SVB, leaving the bank facing a capital crunch and having to announce that it would sell more than $2 billion worth of new shares to address tight liquidity. The decision caused companies and depositors to rush to withdraw money from the bank, sparking a run.
U.S. authorities activated emergency measures on Sunday to avoid collateral damage to the banking system. The regulator assured customers that all deposits would be available to them from Monday. In addition, the Federal Reserve introduced a new facility that will provide loans for up to one year to institutions affected by the collapse of SVB.
Treasury Secretary Yellen, Federal Reserve Chairman Powell and FDIC Chairman Grunberg said in a joint statement on Sunday that the FDIC will protect customers of Silicon Valley Bank and Signature Bank.
ING economists report that,The dramatic repricing of the Fed’s yield curve is negative for the dollar. “Since the first major U.S. financial crisis in 2008, the U.S. yield curve has once again seen a significant inversion – which will be bearish for the dollar … We are returning to our previous safe-haven status to some extent period — that is, sell dollars, buy two-year U.S. Treasuries.”
Fed policy failure?
With soaring borrowing costs across the U.S. hurting the health of the financial system, investors now see the Fed as unlikely to resume raising interest rates this month and possibly cutting them by the end of 2023. Before the Silicon Valley Bank incident, the possibility of raising interest rates by 50 basis points this month was as high as 70%.
Christopher Wong, FX Strategist at OCBC Bank, said: “The spread of market panic may prompt Fed officials to reconsider the pace of rate hikes at the upcoming FOMC meeting, because maintaining financial stability is the top priority.”
Goldman Sachs lowered its forecast for the Fed to raise interest rates. “Given the recent stress in the banking system, we no longer expect the FOMC to raise interest rates at its March 22 meeting, and there is considerable uncertainty about the path of rate hikes beyond March,” the agency said. “
Goldman Sachs’ current forecast is: the Fed will keep interest rates unchanged in March, the Fed will raise interest rates by 25 basis points in May, the Fed will raise interest rates by 25 basis points in June, and the Fed will raise interest rates by 25 basis points in July. 5.25-5.50%.
Economists at Commerzbank said bank losses were caused at least in part by rising interest rates and yields, namely the Fed’s aggressive policy of rate hikes, which in turn sparked the run. “The FDIC issued a statement yesterday confirming that all customers of the two banks involved will receive their deposits. The Fed also responded immediately: it launched the ‘Bank Term Funding Program’ and has opened the discount window.”
Economists at the agency also said that, of course, it is too early to judge whether all these practices are enough, after all, commercial banks can ask the Fed to guarantee the supply of dollars if necessary. But they think,Few market participants are now rushing to buy dollars for fear of another dollar shortage, which has a negative impact on the greenback.
FXStreet analyst Dhwani Mehta reported that,Gold prices have decisively broken above the mildly bullish 50-day moving average (DMA) of $1,873, extending Friday’s gains. Although the gold bulls have been pausing for a while before resuming the uptrend. If the daily line closes at $1,900, the February 3 high of $1,919 will be the bulls’ next target.
Relatively quiet period
Markets will continue to be relatively quiet ahead of the March 22 Federal Open Market Committee meeting. U.S. consumer price data to be released on Tuesday (March 14) will be in focus as investors look for clues on the Federal Reserve’s next move.
The sharp decline in the short-term yield curve following the release of U.S. February non-farm payrolls data on Friday has weighed heavily on the dollar and the global stock complex. Although the number of new jobs was higher than expected, the unemployment rate rose to 3.8%, and the market interpreted it cautiously and impetuously.
UBS analyst Giovanni Staunovo said:“Recent events have shown that gold remains a safe-haven asset as it benefits from market uncertainty and market participants’ adjustments to rate hike expectations are boosting gold prices. But gold’s near-term path remains difficult to predict, That will depend on upcoming U.S. economic data, such as (Tuesday’s) CPI data.”
Spot gold looks at $1904
On the daily chart, the price of gold started the III wave from US$1809, approaching the 161.8% target of US$1896, and may further challenge the 176.4% target of US$1904 in the market outlook. Wave III is a sub-wave of the upward (III) wave that started at $1805.