Gold price jumps $40 to trade above $2k as Jamie Dimon warns the banking crisis is not over
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(Kitco News) The gold market surged Tuesday as the U.S. dollar weakened and investors digested the latest headlines that the banking crisis is not over.
In a letter to shareholders, JPMorgan Chase CEO Jamie Dimon said that the banking sector is still in turmoil and the damage from the crisis will linger for a long time.
"The current crisis is not yet over, and even when it is behind us, there will be repercussions from it for years to come," Dimon wrote in a 43-page annual message.
After the failure of Silicon Valley Bank and the UBS' rescue of Credit Suisse last month, recession odds are growing, he said.
"And while this is nothing like 2008, it is not clear when this current crisis will end. It has provoked lots of jitters in the market and will clearly cause some tightening of financial conditions as banks and other lenders become more conservative," Dimon said.
He noted that the risks in the U.S. banking system were "hiding in plain sight," citing uninsured deposits at Silicon Valley Bank and interest rate exposure. Plus, the stress tests, designed based on the Fed's scenarios, never examined interest rates at higher levels. "This wasn't the finest hour for many players," Dimon said.
At the same time, JPMorgan's CEO stressed that the current banking crisis is nothing like the 2008 global financial crisis.
"In 2008, the trigger was a growing recognition that $1 trillion of consumer mortgages were about to go bad – and they were owned by various types of entities around the world. At that time, there was enormous leverage virtually everywhere in the financial system," Dimon described. "This current banking crisis involves far fewer financial players and fewer issues that need to be resolved."
Dimon has assumed a key role during the ongoing banking crisis, assisting in organizing a $30 billion lifeline for First Republic Bank from 11 major lenders.
Dimon also called for lawmakers not to overreact and create "thoughtful" new regulations.
"It is extremely important that we avoid knee-jerk, whack-a-mole or politically motivated responses that often result in achieving the opposite of what people intended," he said. "Now is the time to deeply think through and coordinate complex regulations to accomplish the goals we want, eliminating costly inefficiencies and contradictory policies."
About JPMorgan, Dimon said the bank is ready for potentially higher interest rates and higher inflation for longer.
As markets were digesting Tuesday's headlines, the U.S. dollar index tumbled, and gold jumped nearly $40, rising above $2,000 an ounce. June Comex gold futures were last at $2,037.80, up 1.87% on the day, while the U.S. dollar index was at 101.52, down 0.56%.
Gold rallied "as bulls stepped in to buy amid still-bullish charts and a weaker U.S. dollar index," Kitco's senior analyst Jim Wyckoff said Tuesday.
The precious metal has been waiting for a fresh spark, and much attention is being paid to Friday's U.S. jobs data, noted FXTM's senior research analyst Lukman Otunuga.
"A disappointing NFP report could feed speculation around the Fed pivoting, ultimately supporting gold bulls," he said. "Prices are likely to range until a weekly close is achieved above or below the identified support or resistance levels."