Gold News

Banking Crash Sees Gold Price Leap, Bond Yields Sink Fastest Since Black Monday 1987

PRICES to buy gold leapt for the 3rd time in 4 session on Wednesday, setting new all-time highs for UK investors and touching $1930 per ounce as shares in Swiss banking giant Credit Suisse led another steep drop in global stock markets.
The panic out of banking stocks saw major government bond prices jump yet again, driving longer-term borrowing costs down to 6-month lows across the board and knocking the annual yield offered by 2-year US Treasurys down by more than 1.25 percentage points from last Wednesday's peak above 5%.
Plunging from the highest 2-year rate since June 2007 – eve of the 'credit crunch' which marked the start of the global financial crisis – that's the fastest weekly drop since the stock market crash of Black Monday1987.
Each of the 10 previous periods of such steep drops saw the 2-year yield start its plunge from higher than 9% per annum.
Chart of 5-session change in 2-year US Treasury bond yield. Source: BullionVault
The odds of "no change" in overnight US interest rates at next week's meeting of the Federal Reserve have now leapt above 2-in-5 having held at zero chance for 5 weeks following the Fed's rate rise and strong US jobs data of start-February.
A 'baby step' rise to 5.00% now accounts for all other bets according to the CME derivative exchange's FedWatch tool. This time last week, the odds-on favorite was a half-point hike to 5.25%, backed by nearly 4-in-5 bets on CME interest-rate contracts.
"Any escalating financial sector distress," says a note from brokerage StoneX's precious-metals expert Rhona O'Connell, "would almost certainly see an initial gold sell-off to raise liquidity, followed by fresh safe haven buying – this is the usual pattern."
But last weekend's failure of tech-focused US bank Silicon Valley "marks a watershed moment in the 'higher for longer' interest rate narrative," says Jonathan Butler at Japanese conglomerate Mitsubishi's precious metals division, and "the combination of falling yields, a weaker Dollar and a rush into haven assets could continue to give some strength to precious metals in the near term, though this may be confined to gold.
"The more industrial-facing white metals could fare less well if economic growth stutters."
Breaking new records for the UK gold price in Pounds per ounce at £1597, the Euro gold price on Wednesday touched €1829, its highest since last spring's record-top amid Russia's invasion of Ukraine.
Bullion priced in the Dollar meantime touched 6-week highs at lunchtime in London, only 1.5% below start-February's 9-month high for US investors wanting to buy gold now.
Silver prices also rose, hitting 5-week highs near $22.40 per ounce – some 9% below start-February's 9-month high – before dropping back below $22 as New York trade began.
But platinum fell, erasing this week's previous pop above $1000 per ounce, while palladium rallied $100 from last week's 8-month lows near $1350.
"If this was last month," said a note overnight about yesterday's solid US inflation data from strategist Nicky Shiels at Swiss bullion refining and finance group MKS Pamp, "a similar outcome would have been worth some decent gold/silver declines, as it solidifies a higher for longer Fed.
"But current market instability ensures this inflation point matters less for precious metals than previous prints."
Shares in No.1 US bank J.P.Morgan (NYSE: JPM) sank by 3.6% at the opening in New York, while fellow London bullion-market clearing bank HSBC (LON: HSBA) – the UK's largest commercial bank – dropped 5.2% on the LSE and German No.1 Deutsche (ETR: DBK) lost another 7.4% in Frankfurt.
Credit Suisse (SWX: CSGN) sank more than 1/5th before cutting that to a 16% plunge.
Already closing last night at yet another fresh record low, Credit Suisse finally published its 2022 annual report on Tuesday, showing total assets down 15% in terms of the Swiss Franc while customer deposits sank by 28% across the year.
The new CEO of SVB yesterday urged venture-capital depositors to move their funds to the newly created "bridge" bank, where – in contrast to the $250,000 limit imposed for unfailed banks – all deposits of any size are now guaranteed by the Fed, Treasury and FDIC plan announced Sunday.
Meantime in geopolitics, and with the White House and Kremlin still arguing over who caused a US military drone to crash into the Black Sea near Crimea, jets from the UK and Germany today intercepted a Russian refuelling plane near Estonian airspace.
Taiwan earlier said it's tracking 28 military aircraft and 4 naval vessels from China, reporting incursions into its air defense identification zone and also across the Taiwan Strait median line.

Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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