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Gold not far from $2,000 in 4th weekly rise; Banking crisis boosts safe havens

Published 24/03/2023, 19:30
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By Barani Krishnan

Investing.com -- Gold futures notched a fourth straight weekly gain, settling within striking range of the key $2,000 target, as fresh ructions in the U.S.-to-Europe banking crisis limited fallout from the dollar’s rebound that weighed on the yellow metal.

Gold returned to $2,000 an ounce over the past 24 hours but closed off those highs on Friday as the Dollar Index, which pits the U.S. currency against six majors, including the euro and yen, rose for the first time in a week.

Notwithstanding the dollar’s rally, the investor flight to safe havens, particularly gold was still evident as Germany’s Deutsche Bank (ETR:DBKGn) became the newest big name caught in the U.S.-to-Europe banking crisis.

Heightened inflation worries were also keeping gold on investors’ minds despite a senior Federal Reserve official saying on Friday that there might be just one more U.S, rate increase in the current hiking 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 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 the worst U.S. inflation in 40 years.

"Gold prices will remain supported amidst heightened U.S. economic policy uncertainty and the risk of elevated headline inflation,” analysts at Montreal-based BCA Research said in a note.

Gold for April delivery settled at $1,983.80 per ounce on New York’s Comex, down $12.10, or 0.6%, on the day. The benchmark gold futures contract hit a session high of $2,006. For the week, it showed a gain of 0.5%, rising for a fourth straight week that has delivered a net gain of more than 9% to longs in the game.

The spot price of gold, more closely followed than futures by some traders, was at $1,977.22 by 14:05 ET (18:05 GMT), down $16.74, or 0.8%. Spot gold hit a session high of $2,002.97.

The U.S.-to-Europe banking crisis spawned new worries on Friday as Deutsche Bank's shares and bonds plunged in the aftermath of Credit Suisse's (NYSE:CS) troubles last week.

"Deutsche Bank is under pressure now,” Jon Jonsson, a credit portfolio manager at Neuberger Berman, said in comments carried by the Wall Street Journal. “People are repositioning, unloading weak links. People want to avoid anything that could come under focus.”

Deutshce’s riskier debt also declined in price, WSJ reported. 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, extended a recent surge.

In the United States, U.S. Treasury Secretary Janet Yellen got the country’s financial regulators on the so-called Financial Stability Oversight Council into a huddle, to decide on next steps.

The banking crisis erupted two weeks ago with the takeover of two mid-sized lenders — Silicon Valley Bank and Signature Bank — by the Federal Deposit Insurance Corp, or FDIC, as depositors yanked billions of dollars from them after fearing for their solvency. Silicon Valley later filed for bankruptcy protection despite the rescue by FDIC. Since then, other U.S. banks, First Republic Bank (NYSE:FRC) and PacWest Bancorp (NASDAQ:PACW), have faced deposit runs as well.

The crisis also took on an international dimension after Zurich-based Credit Suisse, one of the world’s preeminent names in investment banking, faced solvency issues and had to be bought by rival UBS Group AG (NYSE:UBS) of Switzerland.

The crisis is particularly significant to commodities, which depend heavily on banks to provide liquidity.

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