Economy 2 MIN READ

Gold jumps 1% as investors seek cover after SVB collapse

March 13, 2023By Reuters

Gold prices jumped more than 1% on Monday as fears of a fallout from the largest US bank failure since the 2008 financial crisis drove investors to the safe-haven asset.

Spot gold was up 0.6% at USD 1,878.54 per ounce, as of 0631 GMT. Earlier in the session, bullion hit its highest since February 3 at USD 1,893.96.

US gold futures gained 0.9% to USD 1,884.30.

“Gold has certainly sprung back to life, with safe-haven flows sending prices to within a cat’s whisker of USD 1,900,” said Matt Simpson, a senior market analyst at City Index.

Gold rallied 2% on Friday after California regulators closed tech startup-focused Silicon Valley Bank (SVB). Regulators also shuttered New York-based Signature Bank on Sunday.

Helping gold’s advance was a sharp retreat in the dollar.

“Fears of market contagion and stresses may prompt Federal Reserve officials to reconsider the pace of hikes at the upcoming FOMC (Federal Open Market Committee) meeting as preserving financial stability takes precedence,” said OCBC FX strategist Christopher Wong.

Considered a hedge against economic uncertainties, zero-yield gold also becomes a more attractive bet in a low interest rate environment.

Traders have priced out a 50 basis-point hike in March, in contrast to a 70% chance before the SVB collapse. Rate cuts have also now been priced in by end-2023.

Goldman Sachs said on Sunday it no longer expected the Fed to deliver a hike on March 22. Goldman had previously expected a 25 basis-point hike in March.

The revised rate expectations, combined with measures by US officials to battle the financial fallout from SVB’s collapse, boosted riskier assets, but gold has so far held onto most of its gains.

“When it becomes apparent that the risk is contained, gold will be less appealing as a safe-haven,” City Index’s Simpson said.

Silver added 1.2% at USD 20.76 per ounce, platinum was 0.7% higher at USD 965.61 and palladium climbed 2.4% to USD 1,412.51.

(Reporting by Kavya Guduru in Bengaluru; Editing by Subhranshu Sahu and Sherry Jacob-Phillips)

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