Gold has dropped back below $1.900 an ounce as traders and investors reassert their expectation that the Federal Reserve will still hike its benchmark interest rate by 25 basis points when the committee meets next week.
Today’s decline illustrates how closely bound up gold’s fortunes are with the actions and words of the Fed and its officials as the market conditions otherwise remain very favourable for this timeless safe haven asset. The banking sector continues to be rocked with Signature’s failure representing the biggest loss since the financial crisis of 15 years ago and sapping away at market confidence.
For some, the collapse of first Silvergate, then Silicon Valley and now Signature highlight the dangers of blindly trusting banks (or at least those starting with S!) as the place to store money and show the value gold offers with its lack of counterparty risk.
Certainly, haven demand for gold has been the main driver in pushing the precious metal briefly above $1,900 an ounce but its failure to hold above that key threshold suggests fears over a broader contagion to other banks looks less likely and the realities of an environment where interest rates are still rising is once again holding sway.
All eyes will be on the Fed’s decision next week with gold investors hoping for a surprise from the US central bank and a pause on further hikes until the current market fears are becalmed.
This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis.