Financial Stress Attracts Safe Haven Buying In Gold

 Gold has gained almost $100 in the last two trading days. As we all know, the SVB collapse has been the sole reason behind these dramatic movements. And when this was not enough another bank shut down within a space of 72 hours- The Signature Bank. 

Global banking shares plunged as a move by the US to guarantee deposits at tech-focused lender SVB failed to reassure that other banks remain financially sound. 

The gold market saw great attention coming in from safe-haven trade in a chaotic market environment amid growing fears of contagion from Silicon Valley Bank's (SVB) collapse.

Several gold dealers in Mumbai shared their opinion. “There are two major drivers pushing the gold prices - the financial sector distress and the actions that will be taken by the Fed to overcome this turmoil. Markets are also reassessing interest rate hike expectations ahead of the Federal Reserve meeting on March 22.”

Friday’s market reaction saw a surge in gold buying as the bank's stocks came crashing down. This entire incident put the nonfarm payrolls number on the side and became the main influencer world over. The US authorities decided to step in over the weekend and cover all depositors at the Signature Bank. 

Owing to this, there are expectations that the Fed would hold back from increasing interest rates by an outsized 50 basis points next t week. This strain on the banking system and Fed’s efforts to reduce its repercussions has created speculation in the market as to whether the Fed will push ahead with such an aggressive tightening cycle. 

Gold jumped tremendously in a day's trading since November as markets went into panic mode and investors tried to seek haven in bullion.  This sudden spike is expected to mellow down, once markets get stable, and the Fed succeeds in regularising the situation. 

The upcoming US February Consumer Price Index and US Retail Sales reports are expected to be critical for monetary expectations in the gold price today and all these numbers will be monitored closely. However following the unexpected SVB collapse, markets are pricing in a more relaxed stance by the Fed.

The fact of the matter is gold prices this week could swing by $200 in both directions as the trade is already within a very hyper volatile posture leading into a wave of global price report measures this week that are expected to impact the US Fed rate decision on March 22nd. In fact, along with the flight to quality buying interest early today, falling US treasury yields and steep declines in the dollar create a very broad strong bull case for gold which could produce significant upside price action. In retrospect, we are more confident in last week's lows becoming solid value than we are projecting gold reaching $2,000 this week. It should be noted that it has been a very long time since gold was perceived as "the hot market" but that potential is for real over the coming three sessions. Therefore, we suggest traders implement April near the money near to expiration April options against gold positions to ride through potential very wide swings in prices. Pushed into the market, we recommend long positioning over the coming days, but will consider purchasing June Gold puts later this week if prices extend the current rally straightaway.

Markets Await Cues From Fed Minutes

Volatility in the markets across all asset classes remained low as the 21st Feb was US President's Day Holiday. According to the Bullion Dealer in India, “Last week was pan ultimate week of volatility where the US Dollar and US Bond yields surged abnormally over fresh hawkish US-based Data, which further implied till June 2023. This data soared the mood of the US equities and precious metals to some extent even though both have shown the ability to digest the data and comments for Fed and also their future limitations to implement more.” During the weekend some geopolitical tensions mounted as the US ambassador warned China to cross redline if they directly support the military aid to Russia for its invasion of Ukraine. Hence the word of caution prevails across the Asian markets, which majorly opened flat. With a low profile day for precious metals, the only positive sentiment is the renewed geopolitical tension, especially between US and China. Gold prices hit their highest since April 2022 early this month, but have since lost about $120 after a slew of economic data showed signs of a resilient U.S. economy and a tight labour market, fuelling concerns that interest rates would stay higher for longer. “The price of the yellow metal has struggled in conjunction with the broader financial markets due to fears that the US central bank will continue to press the trigger to raise interest rates in its battle to beat inflation.” Shared the Gold dealers in Mumbai. Gold prices hovered around a six-week low on Monday, moving little as traders awaited more cues on U.S. monetary policy. Stubborn inflation, coupled with signs of strength in the jobs market, gives the Fed enough impetus to keep raising interest rates. The minutes of the Fed’s February meeting, due on Wednesday, is likely to reiterate the central bank’s hawkish stance. The main factor for metallic commodities - and global financial markets - is the policy of the US Federal Reserve. While there was some hope that the US central bank might soon hit the pause button on its quantitative easing efforts, the recent wave of inflation data has cast doubt on the inflation-lowering narrative. According to the Gold dealers in India, “Gold marked three straight weeks of losses, falling sharply from a nine-month high hit earlier this year as overheated inflation readings and signs of strength in the US jobs markets indicated that the Federal Reserve had enough impetus to keep raising interest rates in the near term. Still, gold and other precious metals could benefit from safe-haven buying later in the year, especially if slowing economic growth forces the Fed into reversing its hawkish Markets are now uncertain over where U.S. interest rates will peak this year, with some analysts positing a potential terminal rate of over 6%. Rising interest rates boost U.S. Treasury yields, which in turn increase the opportunity cost of holding non-yielding assets such as gold. The yellow metal plummeted in 2022 as the Fed embarked on an aggressive rate hike spree to curb inflation. Focus this week is also on the personal consumption expenditures price index reading for January. The data, which is the Fed’s preferred gauge of inflation, is expected to have remained steady in January from the prior month, indicating sustained inflationary pressure.