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Business News/ Industry / Banking Worries Fuel Gold Price Rally
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Banking Worries Fuel Gold Price Rally

wsj

Prices recently topped $2,000 for the first time since Russia’s invasion of Ukraine

Gold prices in India include 12.5% import duty and 3% GST.Premium
Gold prices in India include 12.5% import duty and 3% GST.

Banking-sector turmoil and worries about the economy have gold prices hitting $2,000 a troy ounce for the first time in a year.

The most-actively traded gold futures contract has jumped 7.4% to $1,973.50 this month, reaching an intraday high of $2,014.90 last week and on pace for the largest monthly percentage increase since May 2021. Prices hadn’t topped $2,000 since Russia’s invasion of Ukraine last spring.

FactSet/WSJ
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FactSet/WSJ

The latest gains have been fueled by nervous investors sheltering in the haven after the collapse of Silicon Valley Bank and Signature Bank spurred fears that a banking crisis could drag the economy into recession.

At the same time, investors’ rush to safer investments has driven down yields on government debt, increasing the relative appeal of gold, which doesn’t offer bonds’ regular payouts. The slide in yields has also slightly weakened the dollar, making gold—which is priced in dollars—less expensive for overseas investors.

Several analysts and investors said the banking tumult portends tightening economic conditions and a pause in the Federal Reserve’s aggressive interest-rate increase campaign, which could drive further gains. The Fed raised rates a quarter-percentage-point last week while signaling that the stress on the banking system could end rate hikes sooner than investors or officials recently anticipated.

EPFR/WSJ
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EPFR/WSJ

Shares of gold producers have been some of the best performers this month. Newmont Corp. has rallied roughly 12%, Canadian-listed shares of Barrick Gold Corp. added about 15% and Kinross Gold Corp. advanced around 24%. That compares with less than 0.1% gain for the S&P 500.

Investors have poured about $1.26 billion into gold mutual and exchange-traded funds during the week ending March 22, the largest weekly net inflow since April 2022, EPFR data show. Todd Jones, chief investment officer at Gratus Capital in Atlanta, Ga., said he plans to buy shares of gold funds for the first time since the European debt crisis in 2009.

CME Group/WSJ
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CME Group/WSJ

“During periods of confidence being lost in the financial system or big drawdown periods, it tends to be when gold does the best," Mr. Jones said.

The banking tumult sent gold prices above $2,000 for the first time since Russia invaded Ukraine, when worries about the war sparking losses in other investments powered a rally in the precious metal. But the Fed’s aggressive rate moves and rising bond yields, adjusted for inflation, weighed on prices in the next few months. Gold finished the year nearly flat.

Prices have climbed again this year, lifted first by hopes that slowing growth and cooling inflation would prompt a letup from the Fed, then by fears that banking trouble would fuel a slowdown. The gains have left gold trading about $100 below its record of $2,069.40 in August 2020.

Those worries have prompted some big price swings. The CME Group Gold Volatility Index recently hit its highest level since last spring. Traders have also been positioning for greater upside risk than downside risk in the future.

The picture in markets and the economy remains murky. Recent gains in stocks have raised hopes the banking turmoil is receding. Bitcoin has climbed almost 20% this month. Inflation has remained hot, which could prompt the Fed to resume rate increases later in the year.

For now, however, some are betting the gains can continue.

“As long as growth continues to slow and inflation comes down, we’re going to want to own it," said Michael Landsberg, chief investment officer at Landsberg Bennett Private Wealth Management in Punta Gorda, Fla.

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