Gold Prices Rebound as Banking Crisis Fears Subside, Investors Shift to Riskier Assets
The GOLD sell-off happened after First Citizens BancShares acquired the failed Silicon Valley Bank’s (SVB) assets on Monday. First Citizens said it would take on $110 billion in assets, $56 billion in deposits, and $72 billion in loans while expanding its footprint in California. The Federal Deposit Insurance Corporation (FDIC) will hold onto about $90 billion in securities for disposal.
These banking sector developments have boosted risk appetite and created a sense of stability among investors. As a result, US Treasury bond yields have risen in a relief rally. This situation allows the Federal Reserve (Fed) to concentrate on the inflation outlook and consider implementing rate hikes if required.
Recent statements from Fed members such as Kashkari (a voter), the notably hawkish Bullard, and Fed Vice-Chair of Supervision Barr suggest that they prioritize inflation over the banking crisis. Fed officials seem relatively confident about banking stress, maintaining that the US banking system’s fundamentals are robust.
The increase in U.S. Treasury bond yields on Monday can be attributed to a relief rally; however, it is too soon to consider it a definitive shift in yields. Any further developments in the banking liquidity crisis might cause yields to decrease and gold to bounce back to the $2,000 level. Investors will closely watch the upcoming US Personal Consumption Expenditure (PCE) data release later this week.
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