Gold futures rose to a 2023 high, edging out the former high of $1976 reached in February. As of 4:09 PM EST, the most active gold futures contract in April is up $58.10 or 3.02% and set at $1981.10. While dollar weakness contributed to today’s dramatic rise, it was only one small factor in a much bigger picture. Given that gold futures posted a net gain of more than 3% and the dollar fell 0.52%, about 5/6 of today’s gains in gold are directly attributable to market participants bidding higher for the precious yellow metal.
Next Tuesday, the Federal Reserve will hold its second Open Market Committee meeting of the year. This will be followed by a FOMC statement and press conference by Chairman Jerome Powell on the following day, March 22.
However, this FOMC meeting will look very different as there is an additional important part to consider in their decision which they will announce next Wednesday, March 22. Not only will the Federal Reserve remain laser-focused on reducing inflation, which remains sticky or stubborn in many sectors, but now they must reckon with a banking crisis first reported last week.
On March 10, 2023, reports surfaced of Silicon Valley Bank going bankrupt after a bank run by depositors challenged its solvency, leading to an inevitable bankruptcy announcement today. The SVB was unique in that its primary activity was financing venture capitalists and technology start-ups. To raise the capital, they liquidated much of their balance sheet assets at a loss of $1.8 billion.
Immediately, the FDIC and banking regulators stepped in to guarantee that depositors’ money would be made available. Yesterday, 11 major US banks created a $30 billion fund at the first Republic Bank to create a backstop to keep banks like the SVB and the well-known Bank of New York solvent. Federal banking regulators applauded the support of this major banking group as it confirms the resilience of the banking system in the United States.
This brings us to next week’s FOMC meeting. The Federal Reserve is expected to approve a ¼% rate hike, with the banking crisis ultimately undermining the view that the Federal Reserve would step up its rate hikes with a ½% rate hike next week. While it is rumored that the Fed could pause, many analysts believe that even with the banking crisis, the Fed must continue to raise rates to maintain its credibility.
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I wish you good trading as always,
Gary S. Wagner
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 that the information provided is accurate; Neither Kitco Metals Inc. however, neither the author can guarantee such accuracy. This article is for informational purposes only. It is not an invitation to trade commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no liability for any loss and/or damage resulting from the use of this publication.
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