Suddenly gold is back in favour as a hedge for nervy investors when other parts of the financial markets step out of line, as has been the case these past few days.
From $US1,820 an ounce early Thursday morning, just before those rumours about financial problems at Silicon Valley Bank first emerged, the front month price on Comex has leapt $US97 an ounce, including a $US50 surge on Monday after the SVB mess had been sorted out by regulators.
Australian gold stocks will have a second bullish day of trading Tuesday after solid gains on Monday.
The sharp rise was the first time gold has reacted positively to good news in a year – since this time in 2022 when it was rising as Russia invaded Ukraine.
That time, gold was just one of a group of commodities whose prices surged – oil, gas, coal, iron ore, copper, wheat and more.
But with this a financial crisis, only gold, and a smaller extent, silver have benefited from the uncertainty. Comex silver prices jumped 6.6% on Monday to just under $US21.90 an ounce – while that was eye catching, silver prices were at that level in February.
Bond yield fell – On March 3, the yield on 2-year US Treasuries (which are more responsive to market thinking on Fed moves these days) were around 5%.
In trading on Europe on Monday they touched 4.1% and fell further in the US to be around 4% at the end of Wall Street share dealings at 7am Sydney time on Tuesday.
10-year bond yields slid to 3.5% on Monday, down 16 points on the day and nearly 50 points (0.50%) in three sessions.
And conditions must be better because the Aussie dollar bounced off its 2023 lows around 65.80 US cents to trade well above 66.60 US cents in early local dealings this morning.
On Wall Street the Dow and the S&P 500 succumbed to selling and fell into the red late in the session but Nasdaq remained in the green.
Iron ore in Singapore jumped to over $US131 a tonne on Monday, up from $US128.77 on Friday but US oil futures slid 2.455 on Monday to $US74.80 a barrel and Brent lost 2.4% to settle at $US80.77 a barrel.
There’s a new thought in the markets that while the European Central Bank will lift its key rate Thursday – 0.50% is still the best bet, the Fed next week will trim its rise to 0.25% or perhaps sit and watch what happens in the banking and other financial markets.
But that train of thought will be tested by the US consumer price data for February – the market is looking for a 6% annual result and a core reading around 5.5%. With the US on Daylight Saving, the data will be out at 11.30pm Sydney time.
The Fed, after arranging the rescue of deposits in the failed banks on Sunday night and announcing that it would make liquidity available to small and regional banks, revealed Monday that it had commissioned an inquiry as to what went wrong at SVB by a senior Fed official. It has to report by May 1.
SVB was one of those small to medium-sized banks that were freed from Fed oversight by Donald Trump’s 2018 move to lift the threshold for banks that are systemically important from $US50 billion to $US250 billion of assets.
SVB only had $US50 billion in assets in 2018 but by the end of 2022, that had ballooned to $US220 billion. The threshold change meant SVB escaped the tougher Fed requirements on liquidity, interest rate risk, hedging (SVB didn’t hedge its interest rate risk) and capital rules that applied to the bigger banks like JPMorgan, Citi and Bank of America.
And yet with $US220 billion in assets it was the 16th largest bank in the US by assets and ended up being systemically dangerous when it collapsed.
So US regulators aren’t to blame – Donald Trump’s changes are partly to blame and so are the management and board (and major shareholders) of SVB.
But gold bugs don’t care, they will enjoy a return to their place in the sun for a while, until the reality of rising interest rates and a stronger dollar intrudes once again.
