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Market Insider: March 28, 2023

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U.S. Money Reserve

Mar 28, 2023

Gold spot prices recently peaked at over $2,000/oz., reaching $2,000.59/oz. in intraday trading on March 20, 2023, according to Reuters. Analysts attribute the increase in gold demand to the recent banking crisis because uncertainty surrounding the banking industry has consumers turning to gold as a store of wealth.

The latest banking crisis continues to unfold.

After the collapse of Silicon Valley Bank (SVB) and Signature Bank in the United States, the latest banking crisis turned international, affecting Swiss banking giant Credit Suisse and leading to its purchase by another major Swiss bank, UBS.

Nearly 190 lenders may be at risk of failure, according to a recent joint study by analysts from the University of Southern California; Northwestern University – Kellogg School of Management; Columbia University – Columbia Business School, Finance; and Stanford University. The study states, “Even if only half of uninsured depositors decide to withdraw, almost 190 banks are at a potential risk of impairment to insured depositors, with potentially $300 billion of insured deposits at risk. If uninsured deposit withdrawals cause even small fire sales, substantially more banks are at risk.”

Black and white image of tall office building and "BANK" sign

Uncertainty surrounding the banking industry could have long-term effects on financial markets.

Analysts have raised the odds of a recession in the aftermath of the SVB collapse. The Wall Street Journal reports that the majority of economists they surveyed in January 2023 expect a recession in 2023—and that after SVB’s collapse, economists who thought a recession would be avoided are now uncertain. Bank of America’s global fund manager survey found that fund managers believe a “systemic credit event” is now the largest threat to markets.

Several entities, including credit rating firm Moody’s, have specifically stated that the banking crisis may harm the economy overall, while BlackRock strategists predict that banking sector chaos may drive stocks to a deeper bottom.

Stock data chart showing market volatility

Many consumers have begun diversifying into safe-haven assets like precious metals.

Speaking with Yahoo Finance for an article published March 20, 2023, Gareth Soloway, chief market strategist at InTheMoneyStocks.com and verifiedinvesting.com, said, “When things get scary out there, [consumers] run to safe havens, and gold is basically one of those major safe havens.”

Fitch Solutions and financial services company CMC Markets both predict gold will reach new price heights. Fitch specifically stated that the demand for gold is in part fueled by “global financial instability” in a March 2023 prediction.

Craig Erlam, a senior market analyst at foreign exchange company OANDA, told reporters for CNBC, “I think it’s very plausible that we [will] see a strong performance in gold over the coming months. The stars appear to be aligning for gold, which could see it break new highs before long,” in an article published March 22, 2023.

While the banking system works to recover from the impact of multiple institutions collapsing, many consumers are turning to precious metals, which have historically been seen as safe-haven assets.

Read U.S. Money Reserve’s “Market Insider” each week for more economic insights. Nothing herein should be considered as portfolio or retirement advice as U.S. Money Reserve (“USMR”) cannot and does not offer financial advice. Clients should consult a financial advisor for specific advice. This commentary is provided by USMR for informational purposes only and is provided on an “as is” basis without any warranty of any kind, whether express or implied. Your use of the information provided in this commentary is entirely at your own risk. In no event will USMR be held liable for any indirect, special, incidental, or consequential damages arising from the use of information contained in this commentary.

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