It's A Big Week For Gold

Gold was going gaga over the ongoing uncertainties globally. There were a host of reasons combined that led to this spike 

Gold, the safest haven amid the ongoing uncertainty, also emerged as one of the most lucrative investment options in financial year 2022-23 with an impressive return of 16.1 per cent in rupee terms, and 2.3 per cent returns in dollars.

Since quite some time we have seen gold rates playing to the moves of either inflation number from US or the Ukraine Russia war. However, there have been a lot of influential factors that have been responsible for the rally in gold prices lately and will continue to do so. 

Effect on Gold rates due to the

Banking crisis- The banking crisis, triggered largely by continuous hikes in the US rates, has led to bleeding bond portfolios and only large banks can survive these losses, the rest could belly up. It has definitely played a key role in gold prices rally and shall continue to do so as many analysts believe that this is just the beginning of a banking crisis.

This scenario will keep safe haven appeal for gold rates

Inflation and gold rate hike - A lot hinges on whether inflation in the US stays above four per cent and the Federal Reserve effectively gives up its target of bringing inflation down to two per cent.

This could happen if there is intense political pressure on the Fed or if the US economy enters recession or suffers a banking crisis.

If the Fed starts cutting the gold rates while inflation is still high, gold may see an accelerated move higher.

Geopolitical - Apart from the ongoing Russia- Ukraine war there are other countries following suit which will definitely benefit gold. If China attacks Taiwan and if the US decides to defend Taiwan, gold prices could shoot up.

On the other hand, if Washington does not defend Taiwan, expect a quick move up and a quick retracement in the price of gold.

Physical demand - The key thing right now is that Russia and China appear to be accumulating reserves in a diversification away from US dollars. That China’s appetite for gold remains insatiable as the latest data from the People’s Bank of China bought 18 tones of gold last month.

China’s gold shopping spree hit its fifth consecutive month

According to many analysts, China’s dominating presents in the precious metal market is completely changing the investment landscape, creating solid value for investors.

Analysts note that China is expected to continue to increase its official gold reserves as it builds international credibility for the yuan. China continues to make important strides as it competes with the U.S. dollar as a world reserve currency. Any kind of physical demand will set gold prices rolling up.

However on the domestic front the recovery gold prices will not rise comparatively for Indian investors as the movement of the dollar-rupee rate is expected to be a key determinant and is likely to limit the gains.

Meanwhile, the volatility will continue if the new US jobs report this week confirms there will be worries ahead for the economy.

It's a big week ahead for Gold!

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.