Gold safe-haven status re-assured, bright metal shines in risk-off mood
- Gold price has rallied over 10% in the past two weeks.
- Trust issues in banking sector continue despite the UBS takeover of Credit Suisse.
- Federal Reserve decision looms over current safe-haven dominance.
Gold price bulls have been the biggest beneficiaries of the international banking crisis that has taken over the financial markets in the past week. The bright metal has rallied more than 10% since March 8 and reached the round $2,000 level on Monday during the European trading session before retracing a bit to trading $1,980 at the time of writing. Gold is nearing its double-top all-time highs from summer 2020 and March 2022 as traders try to find refuge in the most traditional safe-haven asset, ditching cash in the process.
The spark that started this extreme risk-off mood scenario was the collapse of Sillicon Valley Bank (SVB), and it didn’t take long before a big international bank, Credit Suisse, got in trouble. With news over the weekend of Swiss giant bank UBS taking over its rival in shambles in a deal orchestrated by authorities in Switzerland, the markets have not calmed down.
Phil Carr, from the The Gold & Silver Club, explains how the banking crisis is helping Gold, Silver and other precious metals stage this rally:
Over the weekend, UBS Bank agreed to buy Credit Suisse in a historic $3.3 Billion deal. But this still may not be enough to prevent risk of contagion spreading across the broader banking sector – and the global economy.
Depositors aren’t waiting around to find out, which bank fails next.
On Friday, US customers withdrew a total of $42 billion from their accounts. That’s $4.2 billion an hour, or more than $1 million per second for ten hours straight.
Meanwhile, the precious metal markets recorded a net inflow totalling $5.9 billion. That’s the second largest inflow into safe-haven metals ever recorded in a single week since the 2008 Global Financial Crisis.
Gold price rally at mercy of Federal Reserve conundrum
With the Federal Reserve meeting within the market sight this week, market players are asking themselves whether this flight to safe haven will keep benefiting Gold, or if the US Dollar can make a comeback. Eren Sengezer, Senior Analyst at FXStreet, depicts this conundrum in his weekly Gold price article:
“At this point, it looks very unlikely the Fed will opt for a 50 bps rate hike. If that were to be the case, the initial reaction could provide a boost to the USD and weigh on XAU/USD. However, such a decision could also revive fears over a deepening financial crisis and trigger a fresh bout of flight to safe-haven bonds, causing US T-bond yields to fall sharply and opening the door for a leg higher in Gold price.
At the other extreme, markets are likely to go back into panic mode even if the Fed were to leave its policy rate unchanged to address the tightening of financial conditions. Investors could assess such a decision as the situation in the banking sector being much worse than what they were led to believe.”
Forecast poll experts not buying into Gold price hype
Despite the huge bullish momentum in Gold price, FXStreet Forecast Poll respondents are way more cautious, with the consensus not buying the current hype of XAU/USD bulls. The average end-of-the-week target for the bright metal in the poll $1,947.62, with 50% of the experts in bearish territory.
This might reflect a cautious market positioning ahead of a super busy week, with the FOMC Meeting looming, but can also be read in a counter-intuitive way, with US Dollar bulls (or US Treasury bond bears) vulnerable to more losses if the nervousness of the market persists throughout the week.
FXStreet Forecast Poll on Gold price (published on March 17)
In contrast, Phil Carr, the Head of Trading at The Gold & Silver Club, is more bullish than our pollsters, as he explains in the following video: