Renewed Gains in Gold Market Amidst US Bank Regulator Scrutiny
The gold market rose more than $20 on Wednesday as renewed questions about US bank regulators caused investors to flock to the precious metal. The increased interest in gold came amidst news that Silicon Valley Bank (SVB) collapsed, triggering a broader market sell-off and sparking concerns about changes to Federal Reserve rate expectations.
US bank regulators testified before the Senate Banking Committee and proposed several measures to prevent future collapses like SVB. These included strengthening the Fed’s stress tests, implementing a long-term debt requirement for large banks, and improving liquidity rules. The Fed will release its internal investigation findings on what happened at SVB on May 1.
Federal Deposit Insurance Corp. Chairman Martin Gruenberg also mentioned that options for changes to deposit insurance coverage would be published on the same day. The collapse of SVB is expected to cost the US government roughly $20 billion. U.S. regulators are backing a deal for First Citizens Bank to buy Silicon Valley Bank for up to $500 million in stock.
Gold Prices Slip Due to Strong Equities and Stronger Dollar
However, not all news was positive for gold investors. Spot gold was trading at 0.3% lower at $1,967.29 per ounce as Wall Street’s main indexes gained and worries about stress in the banking sector eased. Additionally, the dollar gained about 0.3% against most major peers, making bullion more expensive for overseas buyers.
Investors will look to a key inflation gauge, the core Personal Consumption Expenditures (PCE) price index expected at the end of the week, for more clues on the Fed’s monetary tightening plans. According to the CME FedWatch tool, investors priced about a 39% chance of a 25-basis-point hike in May.
Gold Prices Drop as Global Banking Crisis Fears Ease
In contrast to the previous days, gold market prices dropped on Thursday as fears over the global banking crisis eased. Appetite for riskier assets increased and demands for the safe-haven metal dampened. Spot gold traded at 0.4% lower at $1,966.48 per ounce after rising by 1% on Tuesday.
US gold futures also slipped 0.3% to $1,967.50, and the opportunity cost of holding non-yielding gold rose when interest rates were increased to bring down inflation. Analysts predict that the US Federal Reserve would prioritize bringing inflation back to target, resulting in a weaker gold price period through the second half of 2023.
Investors are still holding onto gold just in case there are more uncertainties. However, markets predict that there’s a 43% chance of the Fed raising interest rates by 25 basis points in May. Spot silver, platinum, and palladium prices also faced a drop.
In conclusion, although uncertainty continues to plague the banking sector, it is causing fluctuations in the market as well. Investors should continue to keep a close eye on both banking and gold market news while keeping themselves informed about new regulations being put into place by US regulators to prevent future bank collapses.
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