19.6 C
New York
Saturday, June 3, 2023

Further upside seen in gold prices due to global banking turmoil

Informist, Monday, Mar 20, 2023


By Sandeep Sinha


MUMBAI – The banking turmoil in the US and Europe has put investors off riskier assets and turned them to the safety of gold. This has led prices of the precious metal to rise to a fresh lifetime high in the domestic market and a 27-month high in the international markets.


Gold prices have surged over $200 per troy ounce since Mar 8 after the collapse of Silicon Valley Bank, Signature Bank, Silvergate Bank in the US, and the fall of Switzerland-based Credit Suisse, one of the 30 systemically important global banks. 


The concerted efforts of global central banks to restore market confidence has not eased the fears of investors and instead driven them to gold, which acts as a store of value during periods of uncertainty and is known as a hedge against inflation and fiat currencies.


Gold prices have also risen on speculation that the US Federal Reserve may hold back a rate hike at its policy meeting this week due to the financial crisis.


According to CME FedWatch tool, Fed futures are pricing in a 62.7% chance that the central bank could hold rates steady this week.


“The market is anticipating a dovish tone from the Fed after the Silicon Valley Bank crisis, which has caused haven buying to increase as a result of the western world’s financial difficulties,” said Ajay Kedia, research head at Kedia Capital.


Gold holdings with SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, rose by 17.93 tn to 921.08 tn on Friday because of fresh inflows from a low of 903.15 tn on Mar 10.


“The key levels for COMEX gold April futures on the upside are $2,015, $2,035, $2,075 and $2,115 per troy ounce, while the levels on the downside are $1,975, $1,950, $1,910 and $1,870 per troy ounce,” said Sriram Iyer, senior research analyst at Reliance Securities.


“In the domestic market, key levels for MCX gold April futures on the downside are 59,580, 58,900, 57,775 and 56,655 rupees per 10 gm, while the levels on the upside are 60,700, 61,140, 62,260 and 63,380 rupees per 10 gm,” Iyer said.


Technically, gold has broken the psychological threshold of 60,000 rupees per 10 gm, supporting the continuation of the positive trend as it moves towards 61,200 rupees and higher where it faces resistance at 62,550 rupees as long as prices are above 58,200 rupees 10 gm, Kedia said.


Over the weekend, The Wall Street Journal reported citing a study that economists have found 186 banks that may be prone to similar risks as Silicon Valley Bank. This raises concerns of a financial contagion and a hard landing in the US.


This comes at a time when US core inflation is at 5.5%, putting the US Fed in a tough spot. “Extreme risk-off sentiment and caution prevails in markets and gold is a major beneficiary of this crisis,” said Ravindra Rao, vice president and head commodity research at Kotak Securities.


“The technical charts are also bullish for gold and silver, which has invited more speculators to the long side of these markets,” said Rahul Kalantri, vice president commodities at Mehta Equities. “We anticipate a significant increase in price if gold closes over $2,000 (in the spot market), which could potentially occur at levels of $2,070 and $2,185/oz. For domestic gold, the levels to watch after a close above 60,540 rupees are 61,920 rupees and 64,000 rupees per 10 gm,” Kalantri said.


The increased nervousness in the financial market can also be gauged from the rise in gold/silver ratio to 88.24 from the low of 75.12 touched on Jan 3. The ratio, also known as Mint Ratio, indicates the number of silver ounces required to buy an ounce of gold. The rise in the gold-silver ratio indicates that gold has outperformed silver.


On the Multi Commodity Exchange of India, the most-active April contract rose 218 rupees or 0.4% at 59,601 and April COMEX contract was at 1,983.80 or 0.5% higher.  End


US$1 = 82.63 rupees


Edited by Ashish Shirke


For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.


Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.


Informist Media Tel +91 (22) 6985-4000

Send comments to [email protected]


© Informist Media Pvt. Ltd. 2023. All rights reserved.

Source: Cogencis

Related Articles


Please enter your comment!
Please enter your name here

Stay Connected

- Advertisement -

Latest Articles

Popular Articles