“Strategist says savers see metals as safe haven in bank struggle. Bank turbulence could lead to $3,000 gold says analyst.”
When considering the value of precious metals to savers, their most alluring attribute is the perceived ability to act as a safe haven in times of economic distress. These metals have a tendency to strengthen when conditions become unfavorable for markets, economies, and the dollar.
Why Gold and Silver are Increasing in Price
The appeal of gold and silver as safe-haven assets is not limited to tumultuous times characterized by crises or geopolitical conflicts. Some retirees choose to incorporate these metals into their portfolios as a safeguard against ongoing dollar debasement. In such cases, they rely on precious metals to provide a cushion against the negative effects of debasement.
Long-term dollar debasement can be detrimental to savers. Even chronic inflation of 4% can erode the purchasing power of a $500,000 savings account to a meager $228,000 over a period of 20 years.
Nevertheless, the dramatic price increases of gold and silver are primarily attributable to concerns that something catastrophic is about to occur, such as war, economic collapse, or a banking crisis.
Speaking of a banking crisis, recent headlines have been dominated by fears of an imminent collapse of the banking system. Silicon Valley Bank was the subject of the largest U.S. bank failure since the financial crisis, while Signature Bank of New York suffered the third-largest bank failure in U.S. history. Additionally, Credit Suisse – one of the world’s “too big to fail” banks – plunged after reports emerged of irregularities in the institution’s financial reporting processes.
While it is not yet clear whether we are on the brink of a systemic banking crisis, widespread concerns about the stability of the banking system are already pushing up the prices of gold and silver.
This development underscores the textbook example of the bottom-line benefit that many savers seek from precious metals. They hope these assets will help offset the volatility in retirement accounts that may arise during crises, or even when there is an increase in the fear that a crisis may occur.
Given the current concerns about the banking system’s stability, precious metals’ reaction to this situation serves as a reminder of why some savers decide to search for perceived safe-haven assets in the first place.
In this article, we delve further into the classic safe-haven-type movement of precious metals amid concerns over the banking system. We will also examine a few other recent examples of silver and gold surging rapidly when anxiety over global stability was particularly high.
There are numerous reasons why retirement savers opt to own precious metals, with the belief that metals can weather sudden, quickly unfolding crises being one of the most prominent. As it turns out, those who put their faith in precious metals may be right on the money.
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According to TD Securities strategist, metals are fulfilling their mandate as a safe haven. Despite the Fed’s rate-tightening cycle, gold & silver remained particularly strong even as the average 401(k) balance fell by nearly 25% in 2022— the sixth-most volatile year since the Great Depression, according to Goldman Sachs.
Hopes for a prosperous 2023 for precious metals were muted recently as indications of sustained price pressures gave way to the possibility of higher interest rates by the Federal Reserve. Nonetheless, a surprising turn of events played out, as gold and silver experienced a sudden uptick in value due to concerns over a looming financial crisis.
Towards the end of last week, reports surfaced speculating that Silicon Valley Bank was in dire straits. That unease soon spread to Signature Bank, arousing apprehension that a much bigger banking predicament may be on the horizon. In a mere few days, both banks were gone, and fears of a major crisis grew more palpable.
In the midst of all this panic, the long-held reputation of metals as a safe haven manifested itself through the triumphant performances of gold and silver. From the preceding Thursday until this week’s Tuesday, the price of gold surged by 5%, and silver skyrocketed by 7.5%.
This sharp spike in metal prices stood as irrefutable proof of their status as a reliable refuge – undeniably affirmed by astute analysts. Amidst the tumultuous events in the banking world, gold and silver once again demonstrated their intrinsic value as a safeguard.
The world of finance has always had its ups and downs, and it seems that investors are turning to gold as a safe haven during these volatile times. Bart Melek, the head of commodity markets strategy at TD Securities, believes that gold is fulfilling its mandate as a haven against market risks, and a lot of investors are acting on this insight.
Recent events in the banking world have led to increased anxiety among investors. The government and Federal Reserve have responded with unprecedented measures to calm the waters, but it seems that trouble is still brewing for some institutions. One such institution is Credit Suisse (CS), which has recently seen its largest backer, the Saudi National Bank, withdraw its support.
This comes after CS announced it had discovered “material weakness” in its financial reporting process from previous years. This has led to a significant fall in share prices, not only for CS but across the financial services sector.
Investors are always on the lookout for ways to mitigate risk, and gold has been a popular choice for a long time. In times of economic uncertainty, it can provide a safe haven for investors looking to safeguard their wealth. The fact that gold has held its value over thousands of years is a testament to its durability and reliability.
It is no wonder that investors are turning to gold as a way of diversifying their portfolios and minimizing risk during volatile times. As we move forward into an uncertain future, gold is likely to remain a valuable asset for investors looking to safeguard their wealth.
The recent news that one of the world’s essential banks, CS, is undergoing difficulties has set off alarm bells among investors. Despite the fact that the issues afflicting CS seem disconnected from those affecting American regional banks such as Silicon Valley and Signature, the news has elevated existing concerns about the outlook for America’s mid-tier banks. Consequently, gold has risen by an additional 1% and silver by 1.5%.
In just under a week, and spurred on by fears of a banking crisis, gold has surged by 6%, while silver has skyrocketed by 9%. But this is merely one example of metals “living up to their bill as secure havens,” in the words of TD Securities’ Bart Melek.
Metals have repeatedly demonstrated their ability to mitigate the impact of uncertainty, as evidenced by other safe-haven-type outbursts. The manner in which silver & gold reacted to Russia’s invasion of Ukraine last year is a prime example of this phenomenon in action. Tensions began to heighten in early February 2022, culminating in the actual invasion on the 24th of that month.
Throughout this period, till the first few weeks of March, there was a considerable amount of concern about how the invasion would turn out, including whether it would spill over into a broader conflict. During this time, gold surged by a colossal 12%, while silver increased by nearly 15%.
Such impressive surges in precious metals during uncertain times further demonstrate their potential to help investors mitigate market volatility. By incorporating metals into their portfolios, investors can take advantage of their well-established characteristics as safe havens, providing a measure of protection against economic turbulence.
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Precious metals have once again demonstrated their capacity to shield investors from market turbulence. The recent events involving CS and potential banking crises highlight the volatile nature of the financial world, but gold and silver’s recent strong performances provide a glimmer of hope in the uncertain times ahead. By including precious metals in their portfolios, investors can ensure that they are well-protected against the risks posed by market instability.
Over the past few years, we have witnessed several instances of “safe-haven surges” in the prices of metals, particularly gold, and silver. These instances arise when geopolitical tensions trigger concerns over global stability and the safety of the banking system. In such moments, precious metals are considered “safe havens” – assets that are likely to hold their value or even increase in value during times of crisis.
One such instance occurred about a year ago when President Donald Trump ordered a missile strike that killed the Iranian general Qasem Soleimani. This move prompted an exchange of missiles between the US and Iran, raising the threat of open warfare between the two countries. During the tense week and a half that followed, the price of gold increased by 7% and silver jumped by 8.5%. While the price surge was temporary and ultimately not sustained, the incident highlighted the role of precious metals as safe-haven assets.
Similarly, the Russia-Ukraine invasion and the US-Iran standoff triggered metal surges that eventually moderated as the tensions subsided. The point, however, is that precious metals respond to geopolitical tensions because they are perceived as “safe havens” by many investors.
Currently, we see another surge in gold and silver prices, triggered by concerns over the banking system. This surge may also moderate if depositors and investors begin to feel more at ease. Until that happens, however, there’s no reason to believe that the current strengthening in metals prices will subside anytime soon.
But here’s the question: will gold & silver prices decline eventually in such moments? Or are there times when safe haven price surges could continue beyond the point at which the immediate tensions subside?
The answer is that there are circumstances in which the surges can become more lasting. For example, if the tensions prompt changes in monetary and fiscal policy that prove favorable for metals, there may be a more sustainable response from the metals market.
In the case of geopolitical tensions like those arising from the US-Iran showdown, there typically isn’t a basis for making significant changes in fiscal or monetary policy. But other sorts of crises could lead to such changes. Depending on the nature of those changes, there can be a more lasting response from metals.
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The 2008 financial crisis is a prime example of this phenomenon. The initial stage of the crisis began in 2007 when more than 25 subprime lenders went out of business between February and March. At the beginning of August 2007, 2 Bear Stearns hedge funds collapsed and a 3rd stopped honoring redemption requests from clients. The downward spiral had begun.
In response, gold climbed 30% that year. However, it was the Federal Reserve’s unprecedented shift to quantitative easing (QE) that paved the way for the sustained increase in gold prices. The Fed announced its first-ever round of QE in November 2008, followed by a second round in November 2010. From the beginning of 2007 through the end of 2011, gold rose nearly 150%, largely on the strength of the Fed’s monetary policy shift.
Today, there is talk of a similar scenario emerging. Many analysts argue that the banking system is simply unable to handle additional rate hikes. There are growing concerns that the Federal Reserve could pause rate increases completely as early as next week. Some economists even speculate that the Fed will cut rates by 25 basis points next week.
According to Mike McGlone – Bloomberg Intelligence’s senior macro strategist, a shift to accommodative monetary policy in such an environment would pave the way “for gold to head to $3,000.” In fact, there are circumstances in which safe-haven metal surges could really become something more lasting. In case that doesn’t happen, retirement savers should be grateful for the peace of mind they get from knowing that even when the turmoil is at its worst, precious metal has the ability to make such days considerably less unpleasant.
