The fallouts from the Silicon Valley Bank (SVB) and Signature Bank of New York collapses, as well as European bank Credit Suisse, are adding a heavy dose of uncertainty in the global banking system. As such, it’s pushing investors into safe haven assets like gold.
It’s a much-needed price boost for gold as bets on more hawkishness for the U.S. Federal Reserve’s rate hikes were putting downward pressure on the precious metal. However, the recent spate of regional bank failures and now Credit Suisse are changing that narrative, at least for now.
In recent news, the collapse of SVB Bank injected concern that contagion in the banking system could spread like wildfire. As such, depositors were withdrawing their money in masses, causing investors (retail and institutional) to add more gold to their portfolios in a flight to safety.
“There is nothing in the print to scare off gold bulls who’re searching for financial instability hedges at a time where the Fed may (indirectly) accept that inflation will stay higher for longer,” said Nicky Shiels, head of metals strategy at MKS PAMP SA.
Additionally, bets are now coming in from Wall Street with the expectation that the Fed will be less aggressive with rate hikes. This may put the Fed in a wait-and-see situation as the the recent developments in the banking industry continue to play out, especially with the dire situation at Credit Suisse.
“Credit Suisse is in principle a much bigger concern for the global economy than the regional U.S. banks which were in the firing line last week,” Andrew Kenningham, chief Europe economist with Capital Economics, said in a research note on Wednesday. “Credit Suisse is not just a Swiss problem but a global one.”
Get Gold Exposure and Income
In times of rising rates and banking system instability fears, gold offers ideal safe haven exposure. In the case of the USCF Gold Strategy Plus Income Fund (GLDX), it also offers income in the face of rising interest rates.
Per its fund description, GLDX seeks to achieve its investment objective by maintaining substantial economic exposure to the performance of the gold markets (physical gold and gold futures). The fund invests in the following:
- Negotiable warehouse receipts, called warrants (gold warrants), evidencing ownership of specific gold bars stored in licensed depositories in and around New York City.
- Fully margined and collateralized gold futures contracts.
- Other gold-related derivative instruments such as cash-settled options, forward contracts, options on futures contracts, and other options (gold interests).
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