Gold is retreating from historic highs. Is this the end of growth?

Gold prices hit record highs last week as signs of a deepening banking crisis added fuel to the unstoppable rally of precious metals.

Additionally, gold prices rose after that Federal Reserve raised its benchmark interest rate by a quarter of a percentage point last Wednesday to a new range of 5-5,25%, the highest level since mid-2007.

The XNUMXth consecutive interest rate hike by the Fed in just over a year shook the entire financial system and triggered a major sell-off in the broader banking sector.

At a time when interest rates were close to zero, the world's banks were raking in record amounts of bonds. But as you know, when interest rates go up, the value of bonds goes down. This is one of the reasons why many banks have gotten into serious trouble.

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Much depends on bonds

The Fed's interest rate hikes have caused the bonds held by the banks to fall in value and are now trading well below what the banks paid for them. Currently, the value of unrealized losses in the portfolios of some of the most recognizable banks on Wall Street is estimated at $ 1,84 trillion - and this number is increasing by the day. However, there is a light at the end of the tunnel, as the yield of 10-year US Treasuries rose for the third time in a row yesterday, reaching the highest level in 4 sessions.

In the week ending May 5, shares of First Horizon Bank, Western Alliance, Zions Bancorp, Comerica and KeyCorp fell nearly 40%. But the biggest victim was PacWest. Fearing PacWest could fail as another piece of the domino, the lender's shares have fallen more than 50% in recent days and more than 90% since the beginning of the year.

It is often said that trust in a financial institution is built over decades and destroyed in a matter of days. As another domino falls, the next weakest bank starts to waver. In summary, this is exactly what we are seeing now.

Gold at ATH

One of the biggest beneficiaries of the current financial climate has undoubtedly been gold. Prices for this precious metal hit a record high of $2 per ounce, beating the previous record of $085,40 per ounce set in August 2.

Since the last quarter of 2022, gold prices have been moving parabolicly, rising to more than 32% from November lows of $1 an ounce.

Is this the end of the rally?

In many ways, this gigantic move was already in the cards after a Google search for the phrase "How to trade gold" hit an all-time high.

No matter how you look at it, one thing is clear. The current macroeconomic situation is fueling a "perfect storm" for gold. That's good news for the bulls, but painful for anyone sitting on the sidelines who now has to decide how much FOMO can bear.