Gold nears $2,000 even as U.S. banking crisis abates

By Barani Krishnan

Investing.com -- Maybe there’s something about the U.S. banking crisis that the gold market knows, which other markets, financial regulators — or even the banks themselves — don’t.

A day after recoiling to mid $1,900 levels, gold futures were back knocking at the $2,000-an-ounce door on Tuesday even as the crisis in U.S. banking seemed to abate with a closely-watched hearing in the Senate not discussing a widening contagion.

The yellow metal’s behavior suggests that investors there “don't think the mini-banking crisis is behind us or, perhaps more likely, that scarring from it in credit markets has permanently reduced the tightening required from central banks,” said Craig Erlam, analyst at online trading platform OANDA.

“That could be bullish, if so, for gold and traders may even have one eye on the all-time highs if rate cuts this year become a reality,” Erlam added.

Gold for April delivery on New York’s Comex hovered at $1,994 in post-settlement trade after officially ending Tuesday’s session at $1,973.50, up $19.70, or 1%, on the day.

The benchmark gold futures contract exhibited similar behavior last week -- trending at the high $1,900s -- before breaching the $2,000 target eyed by longs back-to-back in three sessions between Thursday and Monday.

The spot price of gold, more closely followed than futures by some traders, got to above $1,975.20 in Tuesday’s session.

Gold prices advanced toward $2,000 despite Senate testimony by the Federal Reserve’s supervisory chief Michael Barr not expanding on contagion worries about the U.S. banking crisis unearthed three weeks ago.

In a two-hour appearance before a Senate panel on banking, Barr stuck to the inadequacy in risk mismanagement and other “safe” practices at Silicon Valley Bank that led to billions of dollars in customer deposit withdrawals from the California-based lender and at least two other banks that triggered the crisis.

But if traders were waiting to hear about contagion from the Silicon Valley fallout, they did not get such headlines — from Barr, at least. For the record, the Fed’s supervisory chief already said in his pre-testimony speech on Monday that the central bank’s review showed the U.S. banking system was “sound and resilient, with strong capital and liquidity”.

“While prices could trade lower in the shorter term to medium term, the longer term still remains in favor of bulls due to expectations around the Fed cutting interest rates in September," FXTM senior research analyst Lukman Otunuga said in comments carried by bullion trader Kitco on its website.

The Fed, which has added 475 basis points to interest rates through nine rate hikes over the past 13 months, is expected to end its rate-hiking cycle between May and June. The central bank has ruled out any rate cuts for this year, though analysts aren’t exactly sure about that.