Has gold finally caught fire?
This morning gold moved above $2,000/oz. The previous intraday high (seen in 2020) was $2,080. If you saw our recent interview with Patrick Karim then you might be recalling his comments that aclose here on a monthly basis would signify a break of a trend line going back to 2011. This, of course, would be very bullish.
So where are we at? It’s been over a week since the millennial of the banking world, Silicon Valley Bank, ‘stunned’ markets by filing for bankruptcy and setting off a chain of events that has sent financial markets from one firestorm to another.
The steps that followed the SVB collapse have not been termed as a bailout, but they were basically a bailout. Major banks' stocks (and markets) have been under pressure ever since, as this is near confirmation of contagion and weakness within the banking system.
The Federal Reserve and five other leading central banks have announced plans for improving global access to dollar liquidity. This measure was last used in 2020, during the peak of the global pandemic.
Bank liquidity is something else Dave Russell and I discussed this week, and considered it in relation to the rush to own gold.
This move comes as part of an agreement among the Fed, European Central Bank, Bank of England, Swiss National Bank, Bank of Canada, and Bank of Japan that will see dollar swaps occur on a daily basis until at least April 30th.
The announcement came just hours after another major development in Switzerland's banking sector: news that UBS and Credit Suisse would be merging following negotiations that stretched through the weekend.
Announced last night, UBS agreed to takeover Credit Suisse for a paltry $2 billion, just a few years after it was valued at over $100 billion (the fickles of the fiat system). The bank's collapse resulted in $17bn worth of its bonds being wiped out, upending traditional debt recovery norms and throwing yet further doubt on the confidence placed in many financial markets around the world. Credit Suisse was, after all, one of Europe’s 25 largest banks.
Other than a surprising move by the ECB to hike rates, it looks like central banks will be forced into some new form of quantitative easing and potentially abandon their fight against inflation lest they collapse the banking system.
It all feels a little…desperate… “If you’re explaining then you’re failing,” the wise words from one of the GoldCore team members this week. And boy has there been some explaining going on from the world’s leading central banks.
Last week, the ECB inexplicably decided to push on with rate-hikes (arguably the catalyst to this inevitable implosion). They did this whilst citing concerns that the current rate was too high and could potentially have long-term effects on the region's economic stability.
The ECB noted that its banking system is resilient in spite of reportedly warning EU politicians that some euro area banks may be vulnerable due to the current economic climate.
Some say they did this to maintain credibility. As if there was any credibility to be maintained at all.
It’s like a scene from Friends, ‘we can’t tell them that we know…that they know…that we know we screwed up by hiking too fast, too late... So we need to keep hiking rates.”
Christine Lagarde has subsequently had to hint that she is more than happy to bring out the liquidity big guns in order to ‘smooth’ over the massive cracks that are opening up,
This came around the same time the Bank of England (due to hike rates this week) released a statement in response to the Credit Suisse news that read, “The UK banking system is well capitalised and funded, and remains safe and sound." Currently, markets are pricing in an even chance of a further rate hike from Threadneedle Street.
Meanwhile, the Fed is also due to make an announcement on interest rates this week, following the FOMC meeting. According to an FT poll of leading economists, the Fed will raise rates, keeping them above 5.5%.
Of course, even if we get through this week without another bank collapse, the fear has been prevalent in financial markets over the past week or more, causing lenders to exercise extreme caution when it comes to the flow of credit.
This hesitation could lead to a recession and put further strain on vulnerable sectors such as commercial property, both of which would have dire consequences on banks' balance sheets.
Unsurprisingly investors are turning to real assets. We covered this in a YouTube short, released earlier today:
There are a lot of nervous people at the moment not knowing what banks to trust and who is potentially next to fall. Deposit guarantee schemes will come under a lot of scrutiny now and understandably folks are looking to move into hard assets. Here at GoldCore we’re experiencing ‘unprecedented demand’ for account openings and we’re doing all we can to help.
At the risk of sounding like grave dancers, the contagion we are currently witnessing is something we’ve been waiting to see for a good long while. But despite how long it’s taken us to get here, the dominoes sure are falling fast. We even wondered if we should write anything at all today, it feels like the second we think of what to write, something else has changed.
We realise some will have a lot of questions and concerns. Later on this week I and a couple of members of the GoldCore team will be answering your questions on our YouTube channel. If there is anything you would like to ask, whether about gold, markets, or investing with GoldCore, then please email us at [email protected]and we’ll address as many as we can.
Send this article to a friend: