Gold price rallies after Silicon Valley Bank collapse draws investors to precious metal
Gold’s price has climbed over $20 per ounce since yesterday, with the collapse of Silicon Valley Bank strengthening investor sentiment towards the precious metal.
The commodity has risen from $1,867 per ounce yesterday afternoon to $1,889 per ounce this morning- with a new economic narrative attracting more investors in robust early trading.
Gold has been one of the few beneficiaries from the collapses of 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.
Rupert Rowling, market analyst at Kinesis Money, explained: “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.”
He now argued that the latest developments meant the discussion had evolved from whether $1,800 per ounce was the floor price for gold, to whether it has sufficient momentum to break through $1,900 an ounce with the price already at its highest level for six weeks.
Fed stops spread as HSBC buys UK arm for £1
Rowling praised the response from the US central bank, which opted to protect Silicon Valley’s deposits and shore up its financial systems and head off the possibility of a banking crisis spreading across Wall Street.
After a dramatic weekend, the Fed ensure the failed bank’s customers will have access to all their deposits starting Monday.
It has also set up a new facility to give banks access to emergency funds, and made it easier for banks to borrow from it in emergencies.
Meanwhile, the UK arm of the bank has been snapped up HSBC for a £1.
Forecasting gold’s future price movements, Rowling concluded: “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.”
As for other factors influencing the performance of the precious metal, Craig Erlam, senior markets analyst at Oanda, argued that it was unlikely Silicon Valley’s collapse and revival would power any returns to the near-record prices following Russia’s invasion of Ukraine last year.
Instead, larger factors such as China’s potential rebound or the possibility of more failing banks would be needed to hike prices.
He said: “There’s currently little to suggest we’re about to see a major breakout in either direction. We’ll need to see more concrete evidence that either the global economy is facing dire straits or China’s rebound is going to far exceed expectations.”