Gold Demand Remains Robust as Banking Breakdown Threatens to Bust Rate Hike Projections

Gold prices have shrugged off chaos in equity and bond markets over the last week, rallying back above $1900.00. While some central banks are loading up on gold, others are figuring out how to stem financial sector turmoil and the risk of bank runs. The US’s second-largest bank failure in history has thrown the Federal Reserve’s tightening regime into question and forced them to start up a lending facility backed by the US Treasury. That indicates trouble brewing under the surface and this first measure to sure up banks’ liquidity may not be the last.

Related ETFs: SPDR Gold Shares (GLD), SPDR S&P Bank ETF (KBE)

Central banks globally added another net 77 tons to their gold reserves in January, according to the World Gold Council (WGC). That data indicated a 192% MoM increase, helped along by Singapore boosting its gold reserves by 44.6 tons. That purchase was the Monetary Authority of Singapore’s (MAS) second-largest single purchase ever, equivalent to a 30% gain in their overall reserves. Early indications for February’s haul are signaling the potential for another notable gain, as China appears to have added to its gold reserves once again. That follows a spate of disclosed purchases throughout the prior three months.

Per WGC, Central banks added 1,136 tonnes of gold worth some $70 billion to their stockpiles in 2022, by far the most of any year in records going back to 1950. That sum was bolstered by a particularly strong third quarter of central bank gold buying – a pattern MRP noted back in November – which helped gold reverse seven straight months of decline. Per Deutsche Bank, that was the metal’s worst losing streak since 1869.

While the S&P 500 dumped almost -5.0% throughout the week to March 10, gold was holding strong and even managed to move up 2.3% following a rally toward the end of the week. As of Monday morning, gold held even more gains, breaking the $1,900.00 mark for the first time since February 3.

An ongoing financial sector wipeout, which has seen the liquidation of one bank, and the failure of two others who have now gone into receivership with regulators, has drastically shifted the outlook for monetary policy and boosted gold’s prospects. The latter two banks, now shuttered, are Silicon Valley Bank (SVB) and Signature Bank, carrying cumulative consolidated assets totaling more than $338 billion. SVB’s failure was the second-largest bank failure in US history, trailing only Washington Mutual in 2008.

These failures have been triggered by a sudden exodus of deposits out of banks – particularly among large accounts. These withdrawals have two key causes, with the first being liquidity needs among companies that have seen business slow and costs rise. The second, and perhaps more consequential cause, is the…