GOLD Prices Steady Amid Bank Takeover and Recession Concerns

Mar 27, 2023

The price of gold is experiencing a steady pullback in the wake of First Citizens Bank's takeover of SVB. However, Minneapolis Fed President Neel Kashkari's comments about a possible recession caused by a banking crisis have tempered the relief felt by investors. While the price of gold is correcting, it is still too minor to be considered a reversal. As of the start of the week, XAU/USD is trading in the lower $1,970s, down from its high of just over $2,000 on Friday. Although the easing of bank stress may have lessened gold's safe-haven appeal, fears of wider contagion are still keeping the precious metal's price above a certain level.

The market was temporarily soothed on March 27 when First Citizens Bancshares Inc, the holding company of North-Carolina based First Citizens Bank, purchased defunct lender Silicon Valley Bank (SVB). The takeover has led to a lessening of demand for safe-haven gold.

According to a press release from the FDIC, First Citizens has taken over all of SVB's 119B deposits and loans, and has purchased 72B of its assets at a 16.5B discount. The deal limits the damage caused by SVB's failure, but it does not eliminate it. The bank's collapse is still believed to have cost the FDIC 20B.

Despite the positive news about the takeover, policymakers remain concerned about the potential for more banking contagion to trigger a recession. Minneapolis Fed President Neel Kashkari said in an interview on the CBS show Face the Nation that "Recent stress in the banking sector and the possibility of a follow-on credit crunch brings the US closer to recession. It definitely brings us closer." He added that they were monitoring the situation very closely.

Despite the concerns, the price of gold remains in an uptrend on a short to medium-term basis, making higher highs and lows on the daily chart. This supports bullish bets, as the old adage goes, "The trend is your friend until the bend at the end."