Investor interest in gold remains elevated amid growing fears about the stability of the banking sector.
The EuroStoxx Banks index, which tracks the major EU and UK banks, lost another 2% on Friday and is now down almost 20% from the recent peak reached in February.
Additionally, the price of the CDS (credit default swap, the price for insuring against a default event) related to Deutsche Bank jumped to a new high, suggesting that the recent episodes of banking troubles, with the default of Silvergate Bank and Silicon Valley Bank, followed by the dramatic acquisition of Credit Suisse by UBS, could lead to a wider sector crisis.
The immediate and natural answer for many investors and portfolio managers has been purchasing gold, in order to mitigate the risk.
The medium-term gold recovery is also based on a significant change in expectations for monetary policy for the next few months. Earlier in March, the Fed’s rate was forecast to peak between 5.50% and 6.00%, before starting to slow down in 2024.
Now, after the recent rate increase from 4.75% to 5.00%, the majority of investors believe the Fed’s tightening process is almost complete and that although there is a chance rate will rise to 5.25% in April, otherwise the current level of 5.00% can be seen as the terminal rate and basic interest rates could start to decline from the summer.
Focusing the view on the short-term, gold is challenging the $2,000 resistance level. This morning’s minor decline can be attributed to the recovery seen of Asian stocks, while the futures of all the major European indices are also in green. The overall trend for gold, however, remains unchanged.
Carlo Alberto De Casa is an external Market Analyst for Kinesis Money, responsible for updating the community with insights and analysis on the gold and silver markets. His precious metals market commentary has featured in the likes of Forbes, Reuters, CNBC, and Nasdaq.
With a credential background in Economic Finance and International Exchange (MA), his critical analysis of gold and silver markets’ performance is frequently quoted by leading publications, week on week.
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.