Gold Erases Losses as Banking Shares Collapse

APMEX

3/10/2023 3:42:06 PM

Last week, gold and silver managed to snap their four-week losing streaks amid a dollar pullback and lower Treasury yields. This week, questions surfaced on whether the U.S. Fed will pursue a higher-than-expected interest rate hike of 0.50% when markets had previously given about a 65% chance of another 0.25% interest rate increase. Fed speak and shocking news of a bank collapse would be key drivers of precious metals throughout this week.

Investors started the week in anticipation of Fed Chair Jerome Powell’s testimony before the Senate Banking Committee on Tuesday. As a result, gold saw a slight dip from three-week highs on Monday. Gold and silver were both slightly lower by Monday’s close at $1,845 and $21.04, respectively. 

In his testimony on Tuesday, Powell reiterated the Fed’s commitment to fighting inflation. He also opened the door for “faster tightening” at the March 21-22 policy meeting, in the wake of stronger employment data and rising inflation. Gold tumbled by nearly 2% following Powell’s remarks, as the dollar index jumped to a two-month high near 105.646.

U.S. equities encountered a steep sell-off on Tuesday and continued to fight rate hike jitters through Wednesday, as fresh ADP employment data showed a February rise in private payrolls by 242,000 when 205,00 was expected. Meanwhile, gold and silver saw little change at $1,814 and $20.04. 

Unemployment claims surged to a 10-week high on Thursday, according to data from the U.S. Labor Department. This jump in jobless claims provided hope for some that the Fed would not increase its pace of rate hikes. The dollar fell following this news, while gold jumped above the $1,830 mark. Despite this, gold was still on track for a weekly loss. 

Stocks in the U.S. tumbled on Thursday, amid news that SVB Financial had liquated most of its stock portfolio and had announced a capital raise in the amount of $2.25 billion. SVB Financial has a subsidiary bank called Silicon Valley Bank, which is a bank for major companies and tech startups. 

Employment data was released this morning, which showed that the U.S. added 311,000 new jobs in February, which exceeded forecasts of 225,000. The positive payroll news was overshadowed by news that Silicon Valley Bank had failed to raise sufficient capital and collapsed. 

The collapse meant that nearly $200 billion in customer deposits from the bank were absorbed by the Federal Deposit Insurance Corporation, better known as the FDIC. Stocks in the U.S. plummeted following the news. As this is written, the S&P 500 and Dow Jones Industrial Average are down by nearly 5% this week, while the Nasdaq Composite is currently looking at a 5.4% weekly loss. 

Absent the shocking news of a major bank collapsing, gold would likely have experienced pressure following this morning’s employment news. However, safe-haven inflows have proven supportive of precious metals. Gold has been able to erase its weekly losses for what is currently a 0.6% weekly uptick, at $1,864. While silver also saw a bounce today, the gray metal is currently 3.6% lower for the week at $20.43 an ounce