Gold futures edged higher on Wednesday, reaching within striking distance of their key $2,000 target as fresh ructions in the U.S.-to-Europe banking crisis limited fallout from the dollar’s rebound.
Gold prices rose to $2,000 per ounce over the past 24 hours, but then fell back again on Friday as the US Dollar Index (which tracks the value of the dollar against other major currencies like the euro and yen) rose for the first time in a week.
Despite the dollar’s recent uptick, investors are still flock to safe havens like gold. This is evident in Germany’s Deutsche Bank becoming the latest major bank caught in the crosshairs of the US-Europe banking crisis.
Gold prices were driven by inflation concerns, despite a Federal Reserve official saying that there might only be one more interest rate hike in the current cycle.
James Bullard, president of the St. Louis chapter of the Fed and one of the central bank’s most hawkish advocates of higher rates, said that a rate increase at the May 3 or June 14 meeting of the Fed might be the last for now. The central bank has added 475 basis points to rates since March 2022 in its bid to fight against the worst U.S. inflation in 40 years.
Despite increased economic policy uncertainty in the US and the risk of inflation, analysts believe that gold prices will remain stable.
Gold prices for April delivery settled at $1,983.80 per ounce on New York’s Comex exchange, down $12.10 or 0.6% from the previous day. The benchmark gold futures contract hit a session high of $2,006, before settling back down. For the week, gold prices showed a gain of 0.5%, rising for a fourth straight week. This latest streak of positive weeks has resulted in a net gain of more than 9% for gold prices.
The current price of gold is $1,977.22, down 0.8% from its high earlier today of $2,002.97. Some traders believe that the spot price is a more accurate indicator than futures prices.
The banking crisis that started in the United States has caused new concerns in Europe as Deutsche Bank’s shares and bonds have plummeted in the wake of Credit Suisse’s difficulties last week.
Deutsche Bank is coming under increasing pressure from investors, who are concerned about the potential for negative publicity and are selling off their holdings in the bank.
The price of Deutsche Bank’s riskier debt declined, according to the Wall Street Journal. One of the bank’s additional tier 1 bonds traded at an all-time low, while the cost of insuring its debt against default, as measured by credit-default swap prices, continued to rise.
In the United States, Treasury Secretary Janet Yellen convened a meeting of financial regulators to discuss next steps.
The banking crisis began with the takeover of two banks—Silicon Valley Bank and Signature Bank—by the Federal Deposit Insurance Corporation (FDIC). This occurred when depositors withdrew billions of dollars from the banks out of concerns for their solvency. Silicon Valley Bank later filed for bankruptcy protection, even though it had been rescued by the FDIC. In the aftermath of this event, other U.S. banks—First Republic Bank and PacWest Bancorp—have experienced deposit runs as well.
The crisis also had an international dimension, as Zurich-based Credit Suisse, one of the world’s leading investment banks, faced solvency issues and had to be bought by rival UBS Group AG of Switzerland.
The current crisis is having a significant impact on commodities, which rely heavily on banks for liquidity.