Gold Pushes Higher as Regulators Seek Stricter Banking Oversight

The dust still has yet to settle from the recent spate of bank rescues, which is pushing gold higher as investors continue to question the stability of the financial system.

The collapse of Silicon Valley Bank (SVB) and Signature Bank put the largest banks on notice that more stringent regulations are forthcoming in order to prevent similar collapses. In the aforementioned instances, depositors pulled $100 billion as both banks were put in the hot seat due to poor management, among other things.

“U.S. regulators on Friday (Friday 28) put large banks on notice that tougher oversight is coming, after the Federal Reserve and Federal Deposit Insurance Corporation detailed their supervisory lapses before deposit runs caused the collapse of Silicon Valley Bank and Signature Bank in March,” a Reuters report said.

In terms of specifics, the U.S. Federal Reserve cited “poor management, watered-down regulations and lax oversight by its own staffers” per an AP News report. Given this, the Fed was quick to point at itself for not recognizing issues early as SVB took on “an increasing amount of uninsured deposits and inadequate safeguards against a sudden change in interest rates.”

The Federal Deposit Insurance Corp (FDIC) also accepted accountability for its role in the collapse of Signature Bank. Citing staffing issues and lax supervision, the FDIC also took a hard look in the mirror, noting its own deficiencies in a report.

“Maintaining safety and soundness requires effective challenge from the regulators and receptivity and responsiveness from the banks,” the report said. “In the case of [Signature Bank], the bank could have been more measured in its growth, implemented appropriate risk management practices, and been more responsive to the FDIC’s supervisory concerns, and the FDIC could have been more forward–looking and forceful in its supervision.”

Banking System Fragility Could Help Gold

Gold prices have pushed past the $2,000 mark, but they have since retreated from recent highs. Nonetheless, more questions surrounding the fragility of the banking system and the macroeconomic environment could push investors to demand more gold.

Gold is the top holding in the Neuberger Berman Commodity Strategy ETF (NBCM), which could allow the fund to benefit if gold prices continue to push higher. In addition, the fund holds various other commodities for additional diversification, particularly for investors looking to broaden their portfolio exposure.

“Gold is going to remain a buy-the-dips market until we get a few things ironed out as far as the economy is concerned,” Walsh Trading co-director Sean Lusk told Kitco News.

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