Hawaii Six O - Gary Wagner
Gold prices soften as concern subsides over banking meltdown
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
For the second consecutive day gold futures have traded lower. Today gold traded to an intraday low of $1945 and a high of $1984 after opening at $1982.60. As of 4:15 PM EST gold futures basis the most active April contract is currently fixed at $1958.50 after factoring in today’s decline of $25.30 or -1.28%.
Today’s decline of approximately 1.3% was the direct result of traders bidding the precious yellow metal lower, with dollar weakness providing tailwinds that softened the decline today. Dollar weakness also provided some relief for spot gold which is currently fixed at $1956.90 after factoring in a decline today of $21.30. However, before factoring in dollar weakness spot gold was trading lower by $26.60 with dollar weakness adding back $5.30 per ounce.
The primary factor that had increased demand for the precious metal diminished over the weekend. The concern was centered around a banking crisis involving Silicon Valley Bank and Signature Bank of New York spreading to other banks.
Over the weekend it was announced that First Citizens Bank reached a deal to purchase the Silicon Valley Bank in Santa Clara. The SVB was closed by California authorities on Friday, March 10. On Sunday, March 26 the FDIC (Federal Deposit Insurance Corporation) announced that the First Citizens Bank & Trust Company of Raleigh, North Carolina had completed a purchase agreement from deposits and loans of the Silicon Valley Bridge Bank.
The purchase of SVB greatly alleviated the fears that the banking meltdown would have a contagion effect leading to more banks becoming insolvent. This diminished the demand for safe-haven assets as investors reallocated funds from haven assets to risk-on assets such as U.S. equities. The Dow Jones Industrial Average gained 0.60%, and the S&P 500 gained 0.16%. However, bearish market sentiment continues in the tech-heavy NASDAQ composite which declined by 0.47%.
The two-day decline witnessed in gold could be short-lived as market participants focus on statements made by the Federal Reserve last week. For the first time since the Federal Reserve began raising rates, it indicated that its forward monetary policy is about to begin pausing interest rate hikes. Currently, it is anticipated that the Fed will initiate one more ¼% rate hike in May and then begin to pause rate hikes and assess the long-term impacts on inflation from their flurry of rate hikes which began in March 2022.
The Fed continues to maintain that its current terminal rate will remain elevated but a pause in hikes is the next best thing to a rate cut. Rate cuts were something which Chairman Powell emphatically stated is not something the Federal Reserve will implement without substantial data confirming that inflation is on a sustained downward trajectory towards their 2% target.
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Wishing you as always good trading,
Gary S. Wagner