Gold is rising in price due to fears over contagion in the banking sector, still-high inflation and the yellow metal’s low correlation to stocks and bonds.
Gold was close to a five year high trading Friday at over $1,944 an ounce, up over 5% since March 9 and approaching its 2023 year-to-date high of $1,959.60 on Feb. 6.
Important: Reagan’s OMB Director first warned of major debt and bank crisis to happen in 2023 in new bestseller, advises 4 ways to protect cash – See Emergency Details Here Now!
Banks fears and the continuing war in Ukraine has sparked global worries about the dollar.
Over the course of 2023, gold is expected to rise 3.3%, according to the London Bullion Market Association’s annual survey released Feb. 1, 2023; 43% of those surveyed said the U.S. dollar and Federal Reserve would be the biggest factor driving up gold prices, while 14% said inflation, and 11% pointed to geopolitical factors.
Newsmax spoke to top experts and found three reasons why gold is gaining:
1.) Bank Contagion
Gold is considered the ultimate safe haven for wealth.
The biggest factor driving up gold prices right now is the collapse of Silicon Valley Bank and Signature Bank, and the 25% plummet in Credit Suisse stock Wednesday, and lingering worries over the bank’s solvency.
As traders worry whether the failure of the two banks will lead to further bank contagion, many investors are fleeing to the safety of gold.
“After what happened with SVB, markets are hypersensitive to negative bank-related news,” said Ricardo Evangelista, senior analyst at ActivTrades. Ongoing troubles at Credit Suisse and the banking sector overall are benefitting safe-haven gold, Evangelista said.
Peter Reagan, financial market strategist with Birch Gold, said it is possible the implosion of Signature Bank and SVB could spread, despite the Federal Deposit Insurance Corporation stepping in to make depositors, including uninsured depositors, whole. Regional banks in particular are perceived to be in danger.
It comes down to a loss of confidence in the banking system, Reagan said.
“Contagion is a very simple crisis of confidence,” Reagan said. “The banking system works so long as we pretend it works. It’s based on faith.”
“I prefer to know with absolute certainty that my money is secure, especially my retirement savings,” Reagan stressed.
Trevor Gerszt, Goldco CEO, said current conditions in the financial sector are reminiscent of the beginning of the Great Recession of 2008, when stocks declined by as much as 50%, and retirement savers were among the worst to suffer.
“Gold is an asset that is often chosen by those looking to protect themselves against the potential for loss during recession and financial crisis,” explained Gerszt. “It has a reputation for maintaining its value even in the face of high inflation, market crashes and economic turmoil.”
2.) Low Correlation to Stocks and Bonds
Another reason the value of gold is rising right now is the uncertainty in the banking sector is causing extreme stock and bond market swings—sending investors into safe havens.
“The bond market is entering broken territory when it comes to volatility,” said Kit Juckes, FX analyst at Societe Generale. “These levels of bond market volatility are dangerous and unsustainable.”
“Big changes in interest rates, along with violent yield curve moves and severe inversion, have side effects that can take a while to materialize but have their own second-round effects,” Juckes added.
Market volatility is all but certain to continue ahead of the next Fed meeting March 21-22, said Craig Erlam, senior market analyst at OANDA. This is because traders put a 58% probability on the Fed raising its benchmark rate by 25 basis points—as well as a 42% probability on the hike remaining at 50 basis points.
3.) Inflation Hedge
The markets got mixed news this week on inflation, with the consumer price index (CPI) for February registering Tuesday at a high 6.0%, due to continued rising prices in key consumer goods.
However, on Wednesday, wholesale prices for February came in lower than expected, at 4.6%, down from 5.7% in January.
Regardless of the mixed data, economists concur that inflation is unsustainably high in the United States—with many fearing it may remain elevated at 4% or 5% for a few years.
Such periods are exactly when gold and other safe havens make sense for risk-averse investors.
Investors like gold because it holds its value, preserves owners’ purchasing power, and is a liquid commodity easily converted into cash. Furthermore, gold has always risen in value over the long term.
“People are going to gold, silver, U.S. Treasuries and the dollar,” said Phillip Streible, chief market strategist at Blue Line Futures in Chicago. “It’s a total safe-haven trade. It’s a complete flight to safety.”
“People are exiting riskier assets like U.S. equities and economically sensitive metals like copper, platinum and palladium,” Streible added.
Gold is a smart investment for anyone “interested in protecting their wealth from the disastrous effects of our runaway national debt,” inflation and uncertain markets, said Max Baecker, president of American Hartford Gold.
Important: Reagan’s OMB Director first warned of major debt and bank crisis to happen in 2023 in new bestseller, advises 4 ways to protect cash – See Emergency Details Here Now!
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