Tighter credit market conditions highlighted in Fed's Senior Loan Officer Survey could support gold prices
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(Kitco News) - The gold market is holding above $2,000 but struggling to attract new momentum after last week's sharp selloff following an attempted rally to record highs. However, according to some market analysts, tighter market conditions highlighted in the latest Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) could provide some support in the near term.
Some economists have noted that traditionally the quarterly Senior Loan Officer Survey is not a major report that is highly followed. However, many have been waiting for this report to gauge how badly the banking crisis has impacted the banking sector.
The sting of Monday's report was diminished slightly as Federal Reserve Chair Jerome Powell quoted the report's view of tightening credit markets in his press conference after the central bank raised interest rates by 25 basis points and shifted its monetary policy to a more neutral stance.
According to the survey, "Survey respondents reported, on balance, tighter standards and weaker demand for commercial and industrial (C&I) loans to large and middle-market firms as well as small firms over the first quarter. Meanwhile, banks reported tighter standards and weaker demand for all commercial real estate (CRE) loan categories."
Looking ahead, the survey also shows that banking officials expect to see a challenging year ahead.
"Banks reported expecting to tighten standards across all loan categories. Banks most frequently cited an expected deterioration in the credit quality of their loan portfolios and in customers' collateral values, a reduction in risk tolerance, and concerns about bank funding costs, bank liquidity position, and deposit outflows as reasons for expecting to tighten lending standards over the rest of 2023," the survey said.
Edward Moya, senior market analyst at OANDA, described the report as "a snooze fest that confirmed the grim outlook for the economy."
"?This key survey should support recessionary calls for the third quarter," he added.
Looking at gold, Moya said that it looks like the market wants to take a run back to record highs; however, this week's impending inflationary data is overshadowing the dismal outlook presented in Monday's banking data.
"Gold looks like it wants to make another run towards record territory. Too many recessionary risks are on the table for gold to see a significant pullback," he said. "Gold might be stuck in a range until we get that key inflation report."
In a recent interview with Kitco News, Huw Roberts, head of analytics at Quant Insight, said that he would be paying close attention to the Senior Loan Officer Survey as it could push gold out of its current neutral price action.
He noted that gold is stuck in a push and pull between the Federal Reserve's aggressive monetary policies and the weakening economy. He added that tighter credit conditions generally support higher gold prices.