The US banking crisis has had a significant impact on the price of gold, which has seen a six-month rally and is, as we speak, on the verge of hitting an all-time high.
The rise in demand in China and the general concerns over the health of the regional US banks have been factors that contributed to the momentum rally of the precious metal.
As stated by the World Gold Council, Chinese consumers have been purchasing more gold, in the form of jewelry, bars, and coins, in the first quarter of 2023, especially after the lifting of Beijing’s stringent zero-COVID policies. Gold, which is considered a safe-haven asset known for its ability to retain its value even in times of uncertainty, has become even more attractive to investors, who have flocked to it after the failure of three regional US banks.
After PacWest’s recent announcement that it is considering a potential sale in order to secure its future, gold futures on the Comex exchange have seen a surge that matched the all-time high of $2,072 on Thursday. According to Refinitiv, the spot gold price closed only a few cents shy of its all-time high of $2,072.49 on the same day. However, Friday saw the price drop slightly at $2,008, mainly because of the release of the US jobs data, which was better than expected, pointing to a possible lift in interest rates by the FED to help tame inflation.
The buying of a record 1,097 tons of gold by central banks last November has also contributed to the resurgence of the precious metal, along with several non-western institutions buying gold to balance their reliance on the US dollar as a result of Washington weaponizing the currency in its sanctions against Moscow.
This buying spree has carried into 2023, with central banks purchasing 228 tons of gold in the first quarter alone, despite a decrease from the rampant levels observed in the second half of 2022.
According to John Reade, chief market strategist at the WGC, whether or not gold can continue its upward trend will depend on whether or not investors perceive further deterioration in the banking crisis, certainty over when the FED will start cutting rates, and a weaker dollar. He went on to add: “there’s push and pull from different sides, but what we’ve yet to see unleashed is widespread financial investment in gold. It should from here certainly take it to the all-time high. The question is can it go on from here and make significant gains.”
On the other hand, gold-backed exchange-traded funds (ETFs) suffered losses last year due to the interest of investors shifting to bonds over the precious metal because of higher interest rates. The 11-month run of outflows in ETFs was, however, reversed in March, as the banking crisis began.
Demand for gold, including over-the-counter activity, rose 1% over a year ago to 1,174 tons in the first quarter. The high gold prices proved to be detrimental to demand, prompting instead a rise in selling activity, especially among price-sensitive consumers in India, where jewelry sales dropped about 17% YoY in the first three months of 2023.
In addition, a significant portion of the record levels of central bank gold buying in the second half of 2022 was made by mystery buyers, widely believed to be Chinese, Russian, and Middle Eastern entities, who did not report their purchases to the IMF. The same trend continued in the first quarter of this year as well, with 110 to 120 tons of mystery purchases, which was lower than the 500 to 580 tons in the final half of 2022.
Mr. Reade also suggested that the decline was most likely driven by the People’s Bank of China now reporting its purchases.
To summarize, it may be worth noting that, historically speaking, gold prices are influenced by a variety of factors, such as economic growth, geopolitical tensions, inflation, and interest rates.
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All that glitters: Gold resurges as US banking deals with crisis
The US banking crisis has had a significant impact on the price of gold, which has seen a six-month rally and is, as we speak, on the verge of hitting an all-time high.
The rise in demand in China and the general concerns over the health of the regional US banks have been factors that contributed to the momentum rally of the precious metal.
As stated by the World Gold Council, Chinese consumers have been purchasing more gold, in the form of jewelry, bars, and coins, in the first quarter of 2023, especially after the lifting of Beijing’s stringent zero-COVID policies. Gold, which is considered a safe-haven asset known for its ability to retain its value even in times of uncertainty, has become even more attractive to investors, who have flocked to it after the failure of three regional US banks.
After PacWest’s recent announcement that it is considering a potential sale in order to secure its future, gold futures on the Comex exchange have seen a surge that matched the all-time high of $2,072 on Thursday. According to Refinitiv, the spot gold price closed only a few cents shy of its all-time high of $2,072.49 on the same day. However, Friday saw the price drop slightly at $2,008, mainly because of the release of the US jobs data, which was better than expected, pointing to a possible lift in interest rates by the FED to help tame inflation.
The buying of a record 1,097 tons of gold by central banks last November has also contributed to the resurgence of the precious metal, along with several non-western institutions buying gold to balance their reliance on the US dollar as a result of Washington weaponizing the currency in its sanctions against Moscow.
This buying spree has carried into 2023, with central banks purchasing 228 tons of gold in the first quarter alone, despite a decrease from the rampant levels observed in the second half of 2022.
According to John Reade, chief market strategist at the WGC, whether or not gold can continue its upward trend will depend on whether or not investors perceive further deterioration in the banking crisis, certainty over when the FED will start cutting rates, and a weaker dollar. He went on to add: “there’s push and pull from different sides, but what we’ve yet to see unleashed is widespread financial investment in gold. It should from here certainly take it to the all-time high. The question is can it go on from here and make significant gains.”
On the other hand, gold-backed exchange-traded funds (ETFs) suffered losses last year due to the interest of investors shifting to bonds over the precious metal because of higher interest rates. The 11-month run of outflows in ETFs was, however, reversed in March, as the banking crisis began.
Demand for gold, including over-the-counter activity, rose 1% over a year ago to 1,174 tons in the first quarter. The high gold prices proved to be detrimental to demand, prompting instead a rise in selling activity, especially among price-sensitive consumers in India, where jewelry sales dropped about 17% YoY in the first three months of 2023.
In addition, a significant portion of the record levels of central bank gold buying in the second half of 2022 was made by mystery buyers, widely believed to be Chinese, Russian, and Middle Eastern entities, who did not report their purchases to the IMF. The same trend continued in the first quarter of this year as well, with 110 to 120 tons of mystery purchases, which was lower than the 500 to 580 tons in the final half of 2022.
Mr. Reade also suggested that the decline was most likely driven by the People’s Bank of China now reporting its purchases.
To summarize, it may be worth noting that, historically speaking, gold prices are influenced by a variety of factors, such as economic growth, geopolitical tensions, inflation, and interest rates.
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