Key Points:
- Gold prices are strengthening due to the weakened US Dollar caused by the collapse of Silvergate Capital Corp. and Silicon Valley Bank, along with Signature Bank on Sunday.
- The Fed funds rate path may change due to rising financial pressures.
- If Treasury yields and real yields continue to decrease, gold could see further gains.
Introduction:
Gold prices are seeing an upward trend once again as markets react to the collapse of Silvergate Capital Corp. and Silicon Valley Bank, followed by Signature Bank. The US Treasury Department has assured depositors that their funds will be safe, while the Federal Reserve has created a liquidity facility for eligible financial deposit-taking institutions.
Lower Treasury Yields and Boost to Gold Prices:
With speculation that the Federal Open Market Committee may keep the Fed funds target rate unchanged on the 22nd of March meeting, Treasury yields have gone lower, and the 2s 10s Treasury curve inversion has decreased. The US 10-year real yield has also dipped, leading to a boost in gold prices due to its non-interest-bearing nature.
Related: Carlyle Commodities Gold Silver Project Shows Near-Term Growth Potential
Weaker US Dollar:
The US Dollar has been weakening in recent times, and this has been contributing to the rise in gold prices. A weaker dollar means that it takes more dollars to buy an ounce of gold, which makes gold more expensive for buyers holding other currencies. As a result, investors often turn to gold as a safe-haven asset during periods of dollar weakness, which helps to boost gold prices.
Furthermore, as the value of the dollar falls, gold volatility tends to increase. This is because gold is priced in dollars, so any fluctuations in the dollar’s value can cause fluctuations in gold prices as well. In other words, when the dollar weakens, it can create uncertainty and volatility in the gold market.
Overall, the weakening of the US Dollar is one of the contributing factors to the rise in gold prices, and it is something that investors and market participants will continue to monitor closely in the coming weeks and months.
Impact of SVB Bailout:
The collapse of Silicon Valley Bank (SVB) and subsequent bailout is likely to have some impact on the economy, although the full extent of this impact is not yet clear. SVB primarily served the crypto and technology industries, which could experience some disruption due to the collapse of the bank. However, authorities have worked to reassure depositors that their funds will be safe, which could mitigate some of the negative effects.
Potential Effects on the Fed Funds Rate Path and Gold Prices:
The bailout of SVB and other failed businesses has put financial pressure on the Federal Reserve, which may alter the Fed funds rate path. Additionally, if Treasury yields and real yields continue to decrease, this could send gold prices higher as investors seek safe-haven assets.
Conclusion:
Overall, the full impact of the SVB bailout on the economy remains to be seen. However, it is likely to have some repercussions for the crypto and technology industries, as well as for the broader financial system. Investors and policymakers will continue to monitor the situation closely in the coming weeks and months, while keeping an eye on gold prices as a potential indicator of market sentiment.