Gold prices fell on Monday morning, although before that it rose steadily for 4 straight weeks.
As of 07:00 London time, US gold futures fell 0.11% to $1,989 per ounce in New York. By 10:23 p.m. the index was at $1,982.
Recall that at the end of last week, gold prices managed to break through the level of $2,000 an ounce. Gold gained 0.6% on the whole of last week. This weekly growth was the fourth in a row. The catalyst for such growth was the situation in the U.S. banking sector and its impact on the prospects for the global economy.
March turned out to be rich in big and joyless events, which are able to influence the movement of financial markets during the whole year. Indeed, the U.S. banking crisis has not been as severe as it was in 2008.
Judge for yourself: in just 10 short days several US banks collapsed at once - Silicon Valley Bank, Signature Bank of New York and Silverton. It is also alarming because, as Federal Reserve Chairman Jerome Powell admitted, the series of bankruptcies and closures of American financial institutions will not be limited to these banks. The head of the central bank of the world's largest economy admitted at the last FOMC press conference that at least six more banks in the United States may need a lot of help to keep them solvent.
The largest banks in the U.S. for 10 days invested about $30 billion to stop the economic disaster in the banking system and help many financial institutions not to jump into the abyss, at which they suddenly found themselves. The problem is that analysts and experts make no guarantees. They simply do not know whether these investments and other measures will be enough to contain the damage.
Adding to the anxiety is another piece of unfortunate news: the head of the IMF Kristalina Georgieva openly said at the China Development Forum in Beijing that global financial stability is now on the verge of collapse, and much of the credit for this is due to a sharp rise in interest rates. According to Georgieva, it was the transition to high interest rates that led to the collapse of Silicon Valley Bank in the U.S. and the problems of Credit Suisse in Switzerland.
The persistent post-pandemic inflation is forcing the Fed to fight it in the sharpest way in the past 40 years - by raising interest rates. The Fed has raised rates nine times in the last nine months, by 475 basis points.
At its recent meeting, the Federal Reserve raised the U.S. discount rate by 0.25 percentage points. As a result, the bank rate in the largest economy in the world is now 4.75-5%. Recall that the key rate has been lowered to 0.25% since the start of the coronavirus pandemic in March 2020.
Because of the serious banking crisis in America, the U.S. central bank has hinted that it is considering suspending the rate hike cycle. That is, there is a high probability that the Fed will now raise rates only once.
This supposed pause in rate hikes could weigh heavily on the dollar, but provide great support for gold, which traditionally trades opposite to the U.S. currency.
Important for gold price movements is also the release of U.S. GDP data. The U.S. economy is forecast to have grown by 2.7% in the sixth quarter last year.
Considering the anxious mood in the financial markets and high probability of pause in the U.S. rate hike cycle, traders expect a further gold rally. After all, gold is considered an inflationary hedge, that is, an asset to which investors turn in turbulent times, and even more so amid the unfolding banking crisis in the U.S. and Europe. Traders traditionally bet on changes in the price of gold through futures contracts, exchange traded investment funds (ETFs) or options contracts tied to them.
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