After wild swings, gold showed a strong rebound last week. SPDR Gold Shares GLD added more than 4% last week and 7.3% past month. The subdued U.S. dollar and a decline in U.S. treasury bond yields bolstered the demand for the yellow metal. Additionally, the demand for inflation hedge and growing recession fears are driving investors toward gold, as it is considered a safe haven.
As such, gold ETF rallied over the last week with GraniteShares Gold Trust BAR, iShares Gold Trust IAU, SPDR Gold Shares (GLD), iShares Gold Strategy ETF IAUF, and Aberdeen Standard Physical Swiss Gold Shares ETF SGOL gaining about 5% each.
Factors Driving Gold Price
The combination of factors is acting as a catalyst for gold price. Wall Street has been witnessing high volatility lately due to failures of regional banks like Silicon Valley Bank, Signature Bank and Silvergate Bank. While First Republic Bank secured a $30 billion rescue package from other big banks, its fate is still unclear.
The crisis spread to theglobal market And European banking behemoth Credit Suisse is also operating at the edge. The flagship Swiss lender’s shares nosedived on fears of a debt default. Finally, UBS has purchased the struggling Credit Suisse for more than $3 billion in a historic deal. Such crisis has every reason for a flight to safety, which has bolstered the demand for safe haven asset gold.
In fact, other safe assets like U.S. treasuries gained too, dragging down bond yields. As U.S. treasury yields dropped last week, the greenback has lost its strength. The U.S. benchmark treasury yield started the month at 4.01%, hit a high of 4.08% and ended last week at 3.39%. Traders expect the Fed to raise its benchmark lending rate this week but by a smaller margin of a 25 bps. A decline in bond yields went in favor of non-interest-paying assets like gold.
If the pace of Fed rate hike slows, the U.S. dollar is likely to decline ahead. If the greenback falls, gold prices will gain as the metal is priced in the U.S. dollar. Moreover, ongoing geopolitical tensions in the East Europe and tensed relationship between United States and China may boost the safe-haven status of gold.
Bottom Line
The gold’s rally from here depends on the Fed’s behavior and the government’s ability to tackle the banking crisis. If the U.S. economic growth slows materially, jobs market suffers and the banking crisis deepens, the Fed will likely be staying put in the coming months. This would be a good new for gold investing. Gold investors should closely watch the economic and market events before taking any decision.
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SPDR Gold Shares (GLD): ETF Research Reports
iShares Gold Trust (IAU): ETF Research Reports
abrdn Physical Gold Shares ETF (SGOL): ETF Research Reports
GraniteShares Gold Trust (BAR): ETF Research Reports
iShares Gold Strategy ETF (IAUF): ETF Research Reports
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