Biggest bank failure since 2008 drives gold sentiment higher, could hit $1,900 next week
|Get all the essential market news and expert opinions in one place with our daily newsletter. Receive a comprehensive recap of the day's top stories directly to your inbox. Sign up here!|
(Kitco News) - The biggest bank failure since the 2008 great financial crisis is creating new bullish momentum in the gold market as analysts expect safe-haven demand to drive prices higher next week.
At the same time, the Kitco News Weekly Gold Survey shows that retail investors remain bullish on gold in the near term even as they maintain a conservative price outlook.
The solid bullish sentiment in the market came after California state regulators took control of Silicon Valley Bank on Friday and appointed the Federal Deposit Insurance Corp. as the receiver. SVB was also the second bank to fold this week after Silvergate Capital Corp said that it was voluntarily shutting down its operations on Wednesday.
Analysts said gold will remain an attractive asset as investors protect themselves against inflation and potential financial turmoil.
Analysts also note that the SVB's collapse could signal the end of the Federal Reserve's tightening cycle.
"We've always said that the central bank is going to hike until they break something; this could be that something," said Adam Button, chief currency strategist at Forexlive.com. "You want to buy gold when you can at least see the top in the Fed Funds rate and its close."
Ole Hansen, head of commodity strategy at Saxo Bank, said that he expects market stresses to continue to rise as the economy starts to feel the lagging effects of the Federal Reserve's aggressive monetary policies.
He added that in the current environment, it's unlikely the Federal Reserve will be able to raise interest rates to 6%. He noted that the sharp drop in both two-year and 10-year yields shows that interest rate expectations have peaked.
Two-year yields have dropped nearly 40 basis points Friday from their mid-week highs, which Hansen said will be positive for gold.
This week, 21 Wall Street analysts participated in the Kitco News Gold Survey. Among the participants, 16 analysts, or 76%, were bullish on gold in the near term. At the same time, three analysts, or 14%, were bearish for next week and two analysts, or 10%, saw prices trading sideways.
Meanwhile, 571 votes were cast in online polls. Of these, 340 respondents, or 60%, looked for gold to rise next week. Another 146, or 26%, said it would be lower, while 85 voters, or 15%, were neutral in the near term.
While Main Street investors are bullish on gold, their price outlook is pretty muted as the average forecast calls for gold to end the week around $1,840 an ounce, similar to last week's prediction.
Not only has gold price bounced off solid support above $1,800 an ounce, but it is looking to the Friday at a three-week high at $1,867 an ounce, up around 0.70% from last Friday.
Darin Newsom, senior market analyst at Barchart.com, said he sees technical momentum in gold pushing prices to $1,873 an ounce. He noted that gold is benefiting from U.S. dollar weakness even as economic data continues to support further tightening from the Federal Reserve.
Marc Chandler, managing director at Bannockburn Global Forex, said that he sees potential for gold prices to push to $1,900 an ounce as markets see less aggressive action from the Federal Reserve.
|LBMA investigating Perth Mint allegations after 100 tonnes of "doped" gold shipped to China over three years|
However, he added that inflation data next week, with the release of the Consumer Price Index, will create some risk for the precious metal.
"I think markets giving up on 50-bp hike by Fed and lower rates and softer dollar can extend gold's rally above $1860 toward $1880-$1900," he said. "Of course, an upside surprise in CPI can change this, but new consideration emerged this week with unrealized losses at U.S. banks weighing on risk appetite and concern about systemic risks."