(Kitco News) - The gold market continues to consolidate in a range below $2,050 an ounce and with the market waiting for a new catalyst, some analysts recommend investors continue to pay attention to the banking sector for
Monday afternoon, the Federal Reserve released the results of its Senior Loan Officer Opinion Survey (SLOOS) for the fourth quarter of 2023, showing mixed sentiment in the sector.
The report noted that U.S. banks anticipate an increase in demand for loans as interest rates fall this year. At the same time, while lending conditions continued to tighten in the final three months of the year, the magnitude was reduced compared to the previous quarter.
Paul Ashworth, Chief North American Economist at Capital Economics, said that broadly, the survey shows credit conditions are normalizing. He noted that the level of tightening is now consistent with historical norms that suggest a potential rebound in credit markets.
“The Fed’s latest Senior Loan Officer Opinion Survey suggests that banks have put last year’s SVB regional bank crisis firmly behind them and, with long-term interest rates markedly lower than the peaks reached last October, loan demand appears to have picked up a little too. The credit squeeze is over,” he said.
In a note, RSM U.S. Economist Tuan Nguyen also said that "the worst of monetary tightening for the financial market may be behind us.”
However, other economists are not convinced that credit issues in the U.S. banking sector have been resolved.
James Knightley, Chief International Economist at ING, noted that banks reported weaker demand for commercial and industrial loans. He also pointed out that the survey showed a decrease in the number of inquiries from potential borrowers regarding the availability and terms of new credit lines or increases in existing line.
“This suggests US businesses remain very cautious and are reluctant to put money to work right now, with the report specifically stating that there appears to be ‘decreased customer investment in plant or equipment and decreased financing needs for inventories, accounts receivable, and mergers or acquisitions,’” he said in a note. “In terms of loans to the household sector, we see lending standards continue to tighten for residential mortgages and demand for loans fall.”
Although the Federal Reserve has pushed back on expectations of a March rate hike, many analysts and economists still see a May cut on the table, with the latest SLOOS report having little impact on those expectations.
Chantelle Schieven, head of research at Capitalight Research, said that although gold is consolidating as expectations for aggressive monetary policy easing start to wane, economic conditions remain extremely fragile.
She added that a credit crunch in financial markets is just one of the many factors that could drive gold prices to record highs this year.
“The issues in the banking sector are far from resolved,” she said. “We know from experience that when something happens, conditions can deteriorate fairly quickly and that will continue to support gold prices.”
