Make Kitco Your Homepage

First Republic meets its ‘end', ‘financial calamity' will send gold above $5k - Michael Lee

Kitco News

First Republic Bank, which suffered a 40 percent fall in customer deposits in Q1 and a 96 percent year-to-date fall in its share price, will be placed under FDIC receivership over the weekend, according to those familiar with the matter.

Michael Lee, Founder of Michael Lee Strategy and a former Morgan Stanley VP, said, “I don’t see how First Republic opens as First Republic on Monday morning.”

In an interview with Michelle Makori, Lead Anchor and Editor-in-Chief at Kitco News, Lee claimed that the U.S. has not seen the last of the banking crisis, which started in March with the closure of three banks: Silvergate, Silicon Valley Bank, and Signature.

“You’ll see a lot less small savings banks, across the country,” he forecast. “We could get the number of banks [across the U.S.] cut in half, just from consolidation… that collapse in lending that you’re going to see countrywide is what is going to slow the economy down. It’s what is going to get inflation under control.”

A Boon for Gold?

As the economy weakens and a “financial calamity” sets in, Lee sees gold reaching higher prices and potentially even hitting $5,000 per ounce, as its role as a crisis hedge kicks in.

“I believe something bad is going to happen,” he explained. “At that point, if you get a meaningful breakout in gold, the cycles two-and-a-half times the previous high… so I think $2,000 takes us close to $5,000.”

To find out which critical level gold Lee thinks gold should reach before its breakout to $5k, watch the video above

Fed won’t pivot

Despite weak economic data, including lower-than-expected GDP figures, the Federal Reserve will not pivot or pause their tightening cycle, Lee claimed.

“I think he [Fed Chair Powell] will raise at least once more… I think rates stay there,” he predicted. “There’s not an immediate pivot.”

Lee said that the Federal Reserve needs to regain the “credibility” it has lost over the “last decade,” and in particular over the past three years given “the amount of balance sheet expansion,” and how the Fed “let inflation get out of control.”

U.S. headline inflation peaked at 9.1 percent in June of 2022, which was widely blamed on the Fed’s asset purchases and drastic interest rate cuts amid COVID-19 lockdowns.

“Powell’s life mission is to get this in check, to get inflation down… to 2 percent,” Lee affirmed.

Upcoming Recession

The Federal Reserve has hiked rates by 475 basis points over the past year in an attempt to bring inflation under control. Analysts have suggested that this would trigger a recession, as demand cools.

“Anybody who has followed the history of Fed rate hiking cycles knows that a recession is almost intentional,” said Lee. “The Fed cannot create more goods or more services. However, what they can do is crush demand by tightening monetary conditions, and that’s what they’re going to do.”

To find out how Lee is positioning his portfolio to prepare for a potential recession, watch the video above

Follow Michelle Makori on Twitter: @MichelleMakori

Follow Kitco News on Twitter: @KitcoNewsNOW

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.