At the start of the week, a troy ounce of .999 fine gold was trading at $1,813 per unit. Seven days later, gold rose 9.65% against the U.S. dollar to the current spot price of $1,988 per ounce. Gold’s rise comes at a time when confidence in the global banking system is at an all-time low, and five major banks have received bailouts. An ounce of fine silver also increased in value, rising more than 12% from $20.01 to $22.59 per ounce this week.
Gold and Silver Prices Surge Amid Banking Crisis and Expectations of a Dovish Fed
The price of gold is approaching the $2,000 per ounce mark after numerous U.S. and international banks showed signs of extreme weakness. The Federal Reserve lent banks $164.8 billion in five days, erasing almost 50% of the U.S. central bank’s monetary tightening policy. As a result, the market expects a dovish rate hike this month, possibly around 25 basis points, or even no rate hike at all after the financial calamity the banking industry has faced. According to TD Securities’ global head of commodity strategy Bart Melek, this is “good news for gold,” he told Kitco News.
“Markets are concluding that we’ll see the Fed go for another 25bps increase and then probably sit on it for a while and see what happens,” Melek explained. “The view from the gold perspective is that given disruptions in the banking system and the U.S. Treasury Department’s willingness to help, we might get accommodation that allows inflation to hang around longer at a higher level.”
Gold surged 9.65% against the U.S. dollar this past week, and silver also rose 12.61% higher over the last seven days. Meanwhile, the U.S. Dollar Index (DXY) has fallen from 105.65 at the start of the week to the current level of 103.864. Statistics analyst and market movement forecaster Northstar tweeted about gold’s performance over the years compared to the DXY 21 days ago. “In 1974, the DXY was 105 [and] gold was $150,” Northstar said at the time. “In 1981, DXY was 105 [and] gold was $450. Today, DXY is 105, [and] gold is $1,810. Do not fear a rising U.S. Dollar Index – over time, gold faithfully tracks purchasing power destruction.”
Bloomberg’s senior macro and commodities strategist Mike McGlone referred to gold as a “resting bull” three days ago, on March 15. “Gold appears to be a rare resting bull market compared to most risk assets and commodities that are reverting from getting overextended, on the back of pandemic-related excess liquidity,” McGlone said in an investors’ note. “Plunging crude oil may be part of the deflationary spark for the metal to breach resistance of $2,000 an ounce. If history is a guide, 300 rapidly declining commodities, a banking crisis, and Federal Reserve tightening pose an oxymoron and could trigger a Fed pivot buoying gold,” McGlone added.
Silver Could Post Much Larger Gains than Gold; Bitcoin Poised to Trade like Gold and U.S. Treasury Long Bonds
Richard Mills, the owner of aheadoftheherd.com, explained on Friday that he believes silver’s rise is understated. “Current indications show that silver is way undervalued,” Mills said. “Right now, on the morning of March 17, the gold-silver ratio is 88:1, meaning it takes 88 ounces of silver to buy one ounce of gold.” Mills added that when gold reached $2,000 per ounce, “silver rallied to nearly $30 an ounce, a 147% increase.” The investor said that the silver-gold ratio just fell from over 100:1 to just over 64:1, and he opined that a significant rise in silver’s value “could easily happen again.”
Many gold and silver proponents have high hopes for the precious metals going forward. Moreover, while McGlone believes gold will be affected by the current macroeconomic events, the market strategist also thinks the banking issues may be a defining moment for bitcoin (BTC). “Bitcoin may be progressing to trade more like US Treasury long bonds and gold as banks come under stress on the back of the bond-price collapse. Bitcoin sustaining above $25,000 is a clear sign of divergent strength,” McGlone tweeted.
What are your thoughts on the current state of the global banking system and its potential impact on the value of gold, silver, and other assets like bitcoin? Do you think we’re headed for a major financial crisis, or is this just a temporary blip? Let us know in the comments section below.
