Gold, Silver Soar Amid Fears of Global Banking Crisis
Daiviet Huynh | Mar 16, 2023 07:58AM ET
We’ve got a major situation brewing in the banking sector, and it’s got the market on edge. Silicon Valley Bank (SVB) and Signature Bank’s recent collapses have sent shockwaves through the financial world, sparking speculation of a possible banking crisis. The big question on everyone’s mind is whether the U.S. Federal Reserve will hold off on further interest rate increases in light of these developments.
The concerns are not unfounded. Credit Suisse’s stock value has taken a nosedive on Wednesday, fueling speculation that deeper issues may be at play within the banking industry. This has only added to the growing unease in the equity market this week.
Now, we’ve seen some ups and downs in the inflation reports, but there have been promising signs of growth with January’s robust employment figures and high inflation rates. Initially, Powell’s hawkish testimony last week had the market predicting a half-point interest rate increase, but that likelihood has since waned.
And for a good reason - the Fed is walking a tightrope here. They don’t want to risk raising rates and exacerbating the fallout from the bank failures, which would only add to the already uncertain state of the banking system and put a damper on the economy.
So where does that leave us? Well, we’re staying bullish on gold and silver.
Gold is trading at a level close to its six-week high, due to the rising demand for safe-haven assets. This demand was triggered by the collapse of Silicon Valley Bank and Signature Bank (NASDAQ:SBNY) in the US and fresh troubles at Credit Suisse, a Switzerland-based bank.
This market turmoil has led to speculations of a possible global banking crisis and economic instability, which has prompted investors to consider a less aggressive approach to policy tightening by major central banks to prevent a severe recession. The price of gold is particularly sensitive to changes in interest rates, as higher interest rates increase the opportunity cost of holding non-yielding bullion.
That said, gold remains a top pick as we maintain a bullish stance on the yellow metal. Our daily chart analysis indicates a promising uptick, with gold breaking above both the 50-day Simple Moving Average (SMA) and the 20-day equivalent. Such a development signals a neutral market that could soon turn bullish with the potential for a Golden Cross formation in the coming days.
While some minor resistance exists at the 14.6% Fibonacci retracement level at $1,909, a confirmed breakout above this price could catapult gold toward the February peak at $1,959.74. However, caution is advised as a dip below $1,804 could shift market sentiment back to a more bearish outlook.
For long-term investors looking to buy the dip, there is a strong technical support level of around $1,814. The market has also shown a significant buying volume of around $1,885, with a notable increase since the last 90-day period. Market participants might consider entering the key range of $1,826 to $1,858.
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The price per ounce of silver reached a one-month high of $22.2, surging on the back of a rise in other precious metals, as investors turned to bullion assets amidst concerns over the financial stability of banks worldwide. The Saudi National Bank has decided to hold back further investment in Credit Suisse, despite the bank's warning of material weakness and rising apprehensions of instability in the European financial system.
The ongoing banking crisis has impacted money markets. The Federal Reserve faces equal chances of increasing its funds' rate by a modest 25bps rate hike or keeping it unchanged in the upcoming central bank meeting. Meanwhile, producer prices in the United States have slowed more than expected, raising hopes that inflationary pressures within the US economy may be subsiding.
Silver prices have confirmed a breakout above the 20-day SMA, but the 50-day line still stands above. Another key point of immediate resistance is the 38.2% Fibonacci retracement level at $21.92. Confirming a breakout above these two points could offer an increasingly bullish trajectory in the near term.
Silver has traded in the $16.38 – $24.45 range for 52 weeks, currently changing hands for $20. Although the price of the metal is near reaching its oversold territory, we advise remaining cautious as there could be significant resistance around the $22 level that could limit the upside in the near term.
Over the last 90-day period, a substantial volume of sellers of around $21 has been observed, with a "sell" volume increase over the last three months. Despite this, a rebound could be imminent, providing an opportunity to "buy" the dip. Market participants might be interested in entering at a key range of $18.91 - $20.
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