Gold has been one of the few beneficiaries from the collapses of first Silvergate and then Silicon Valley Bank, with the precious metal’s safe-haven appeal seeing its price surge to close to $1,900 an ounce.
The failure of Silicon Valley Bank in particular raised contagion fears, resulting in the US dollar weakening significantly and dialling back expectations on how much higher the Federal Reserve will hike interest rates. Given gold’s inverse correlation with the dollar and its lack of yield often seeing it struggle during times of rising rates, the conditions for gold have dramatically improved in a matter of days.
Suddenly, far from seeing $1,800 as an important support level, now the question is whether gold has sufficient momentum to break through $1,900 an ounce with the price already at its highest level for 6 weeks.
The Fed’s response to Silicon Valley Bank’s failure has looked to have the desired effect in calming markets and reducing the risk of contagion so gold may find it harder to continue its sharp gains.
However, if this threat to the strength of the US economy results in the Fed not hiking its rate further when it meets next week then gold can at least maintain its elevated level and continue to trade close to $1,900 an ounce.
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