Gold price surges above $1,900 as U.S. grapples with banking turmoil, Biden seeks to reassure the public

(Kitco News, Mon. March 13th, 2023) The gold market jumped above $1,900 an ounce as U.S. markets reacted to the growing banking turmoil after the collapse of Silicon Valley Bank and Signature Bank.

The precious metal attracted investors as the equity market tumbled, the U.S. dollar index dropped, and the U.S. Treasury yields fell. The two-year U.S. Treasury yield posted the biggest one-day drop since 1987 and was last at 4.12%

U.S. President Joe Biden made an urgent appearance to reassure the markets that the U.S. banking system is “safe” and seeking stronger bank regulations.

“Americans can have confidence that the banking system is safe. Your deposits will be there when you need them,” Biden said Monday. “I’m going to ask Congress and the banking regulators to strengthen the rules for banks to make it less likely this kind of bank failure will happen again, and to protect American jobs as a small business.”

Fears of a full-blown banking crisis and re-pricing of future Federal Reserve rate hikes have driven gold above its critical psychological level of $1,900. Since Friday, the gold market has gained more than $70. April Comex gold futures were last at $1,909.20, up 2.26% on the day.

The drop in the U.S. 2-year Treasury yield points to the bond market starting to price in rate cuts in the mid of this banking rout, said TD Securities senior commodity strategist Daniel Ghali.

“Investment flows are finally supporting the yellow metal. The sharp decline in US2y yields underscores the market’s expectations for liquidity risks to translate into Fed cuts, boosting the discretionary case for gold,” Ghali said Monday. “Several catalysts for additional flow lie just north of $1910/oz, which could see substantial CTA flow notably help gold prices rally further.”

After California banking regulators had to swoop in quickly and close SVB Financial Group Friday in what was the largest bank failure since the financial crisis, Signature Bank became the next casualty. On Sunday, state regulators closed New York-based Signature Bank.

After an emergency meeting Sunday, the U.S. Treasury Department announced that all depositors would be made whole, and the taxpayer would bear “no losses.” Also, the banks’ customers will get access to their deposits on Monday. But shareholders and certain unsecured debtholders will not be protected, with senior management of both banks ordered to be removed, according to officials.

Markets interpret these bank failures as unintended consequences of the aggressive tightening cycle pursued by the Federal Reserve in its fight against inflation. And now some analysts are even starting to price in a halt in the rate hikes.

Goldman Sachs no longer forecasts the Fed to increase rates at the March 22 meeting. “In light of the stress in the banking system, we no longer expect the FOMC to deliver a rate hike at its next meeting on March 22,” Goldman economist Jan Hatzius said in a Sunday note.

JPMorgan still sees a 25-basis-point hike on the table in March.

According to the CME FedWatch Tool, markets are looking for a 28% chance of no rate hike on March 22 and a 72% chance of a 25-bps hike. There will be little direction from Fed speakers next week as central bank officials enter a quiet period before the meeting.

Posted by:

Jack Dempsey, President

401 Gold Consultants LLC

jdemp2003@gmail.com