Gold News

Gold Firm, Silver Reaches $23 as Fed Raises, SNB Hikes in Face of 'Tight' Banking-Crash Credit

The GOLD PRICE held firm against all major currencies on Thursday, retaining 4/5ths of this month's 10% banking-crash spike while silver also rose, touching 7-week highs despite further interest-rate rises from the US Federal Reserve and 3 other Western central banks, adding to tighter credit conditions in the global economy in a bid to curb inflation.
Gold traded just below $1980 per ounce as new data said US sales of newly-built homes sank in February but New York's stock markets jumped to reverse Wednesday's 1.7% drop.
Silver meantime edged above $23 per ounce for the first time since the start of February.
"Recent banking events will result in tighter credit conditions," said Fed chairman Jerome Powell on Wednesday, raising overnight Dollar interest rates to a ceiling of 5.00% per annum while maintaining the US central bank's outlook for rates to end 2023 at 5.1%.
"That would impact the economy and how we need to respond."
Gold's price strength despite the rate rise shows that "the market looks...more interested that the Fed is concerned about underlying risks" says brokerage StoneX's precious-metals expert Rhona O'Connell.
Indeed, "If recent liquidity injections aren't sufficient to stem the impending tightening of financial/credit conditions," says Swiss bullion refining and finance group MKS Pamp's strategist Nicky Shiels, "that’s deflationary for most assets.
"[If] a Wall Street crisis becomes a Main Street crisis [then history says] gold should outperform if/when financial conditions tighten," Shiels goes on, highlighting gold's value against sister metal silver.
Chart of US financial conditions index vs. the Gold/Silver Ratio. Source: MKS Pamp
Peaking above 95 last September, the Gold/Silver Ratio – which simply divides the price of the 'safe haven' yellow metal by the price of the more industrially useful white metal – today edged down to a 1-week low of 86.4 ounces of silver to 1 ounce of gold.
That still priced gold 6 ounces above its 5-year average if the Gold/Silver Ratio's record spike of the 2020 Covid Crisis is excluded.
"The Fed is having to balance inflation risks and economic stability," says London bullion market-maker Standard Chartered's precious metals analyst Suki Cooper.
"Both are factors that could drive further safe-haven demand for gold."
Norway and the UK's Bank of England today followed the Fed's overnight rise with a quarter-point increase, while the Swiss National Bank surprised traders and analysts with a half-point hike even as shares in giant bank UBS fell more than 3.0% amid fresh legal wrangling over its 'shotgun' acquisition of distressed rival Credit Suisse.
Swiss financial regulator Finma today issued an "explainer" for bondholders looking at legal action over the wipe-out of $17 billion in AT1 debt, asserting that triggering the write-down clause in those contracts was "a protect clients, the financial centre and the markets."
Such banking "developments" mean that "wholesale funding costs have risen in the United Kingdom and other advanced economies," noted the Bank of England this morning, raising UK interest rates to 4.25% in the face of consumer-price inflation rising to 10.4% on last month's data.
"[We] will continue to monitor closely any effects on the credit conditions faced by households and businesses, and hence the impact on the macroeconomic and inflation outlook."

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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