Gold surges to $1982.8 as investors reconsider banking crisis and accommodative Fed
Gold futures surged to their highest of 2023, surpassing the previous high of $1976 set in February. As of 4:09 p.m. EST, the most active April contract for gold futures is up $58.10, or 3.02%, to fix at $1981.10. While dollar weakness contributed to today’s dramatic rise, it was only a small factor in a much larger picture. Considering gold futures had a net gain of over 3% and the dollar was down 0.52%, about 5/6 of today’s gold gains are directly attributable to market participants bidding higher for the precious metal.
Next Tuesday, the Federal Reserve will hold its second FOMC meeting of the year. This will be followed by an FOMC statement and a press conference by Chairman Jerome Powell the following day, March 22nd.
However, this FOMC meeting will be quite different in that there is an additional important component to factor into their decision, which they will announce next Wednesday, March 22nd. Not only will the Federal Reserve remain focused on curbing inflation, which remains sticky or stubborn in many sectors, but now they must factor in a banking crisis that was first reported last week.
On March 10, 2023, reports surfaced of the failure of Silicon Valley Bank after a bank run by depositors threatened solvency, leading to an inevitable bankruptcy announcement today. SVB was unique in that its core business was funding venture capitalists and start-up technology companies. To raise the capital, they liquidated much of their assets on their balance sheet at a loss of $1.8 billion.
Immediately, the FDIC and banking regulators stepped in to guarantee that depositors’ money would become available. Then 11 major US banks yesterday created a $30 billion fund held at First Republic Bank to provide a backbone to keep banks like SVB and Bank of New York solvent. Federal bank regulators welcomed the support of this large banking group as it confirms the resilience of the banking system in the United States.
This brings us to next week’s FOMC meeting. The Federal Reserve is expected to approve a ¼% rate hike, with the banking crisis ultimately dampening sentiment that the Federal Reserve will add a ½% hike to its rate hikes next week. Despite rumors that the Fed may take a pause, many analysts believe the Fed must continue to hike rates amid the banking crisis to maintain credibility.
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I wish you good business as always,
Gary S Wagner
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