Afraid of a Sunday bank failure, investors don't want to start the weekend without some gold, driving prices up more than 3%
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The gold market is looking to end the week near a one-year high as a late afternoon surge pushes prices solidly past resistance of $1,975 an ounce. April gold futures last traded at $1,988.80 an ounce, up more than 3% on the day. At the same time, gold is seeing its best weekly price gains in three years.
Analysts said that this is classic demand for a safe-haven asset.
"You need to hold some insurance over the weekend because you don't know what bank is going to collapse next," said Phillip Streible, chief market strategist at Blue Line Futures.
Jim Wyckoff, senior technical analyst at Kitco.com, said he also sees safe-haven demand driving higher gold prices.
"If the situation surprisingly improves over the weekend, which is doubtful, gold would likely see price weakness," he said.
According to some analysts, investors are preparing for another potential "Signature Bank headline" over the weekend. This past week started early after it was announced the Federal Deposit Insurance Corporation took control of the New York-based bank early Sunday.
In an attempt to ease consumer fears, Treasury Secretary Janet Yellen, Fed Chair Jerome Powell and FDIC Chairman Martin Gruenberg, released a joint statement Sunday evening saying that the government would protect all deposits held at Signature Bank and Silicon Valley Bank, which was taken over by the FDIC Friday.
But despite reassurances, the contagion risk seems to be growing. "All regional banks are at risk of failing as consumers continue to move their money to bigger banks. Nobody is safe right now, so it makes sense that gold and even Bitcoin are rallying," said Streible.
Not only do banks have to meet growing liquidity needs as consumers move their money, but because of higher interest rates, the institutions are being forced to sell their bonds at a loss to meet their customer demands.
Along with safe-haven demand, analysts note that gold and silver are also benefiting from some short-covering as speculative positioning ahead before this week's banking crisis showed lackluster bullish interest.
|Commerzbank reaffirms its gold forecast, looking for prices to end 2023 at $1,950 an ounce|
The Commodity Futures Trading Commission's disaggregated Commitments of Traders report, showing speculative positioning for the week ending March 7, revealed that money managers were net long gold by only 14,399 contracts, a four-month low.
With bullish speculative positioning so low, market analysts said gold has enough room to push to $2,000 an ounce.
In a comment on Twitter, Ole Hansen, head of commodity strategy at Saxo Bank, said that gold's break above $1,960 puts $2,000 into play.
Streible said that silver's speculative positioning shows even more potential, which is one of the reasons why silver is outperforming gold late Friday. May silver futures last traded at $22.710 an ounce, up 4.69% on the day.
The COT shows that money managers were net short silver by 17,402 contracts.
"These silver shorts are done," said Streible.
In a note Friday, John Reade, chief market strategist at the World Gold Council, noted that risks of a banking crisis could also be seen in gold-backed exchange-traded products. He noted that this week 16 tonnes of gold flowed into global ETFs, valued at $1 billion, "reversing ten consecutive weeks of outflows."