Gold Confirms Its Safe Harbor Status?

Gold is a precious metal that has long been a safe haven for investors in times of economic uncertainty. It is no different this time. The precious metal has seen a surge in prices after the collapse of Silicon Valley Bank (SVB), the 200th largest bank in the United States with more than $XNUMX billion in assets.

In addition to the banking crisis, gold also draws support from the recent narrative that the Federal Reserve will be forced to ease an aggressive monetary policy tightening due to the risks emanating from the banking system. Increasingly, there are voices that the cycle of tightening by the Federal Reserve has come to an end.

Tool CME FedWatch points to a 69,2% chance of a 25 basis point hike in May, with rate cuts expected in the second half of the year. While another 25 basis point rate hike in May would be a drag for gold, it may not necessarily be a turning point in the precious metals market. It just seems that in this environment, investors will just have to wait a little longer before record highs are back on the radar.

Central banks are buying gold at a record pace

Central banks accumulated gold at the fastest pace in history in the first two months of 2023, according to a report by the World Gold Council (WGC). In January and February, they bought as much as 125 tons of metal in total, which is the highest result since 2010. According to the data, the countries reporting the largest purchases in the first two months are Singapore, Turkey, China, Russia and India.

At the same time, the central banks of only a few countries have reduced their oil reserves. These were Kazakhstan, Uzbekistan, Croatia and the United Arab Emirates (UAE), although in annual terms their purchases significantly exceeded sales. As many as three countries belonging to the group were among the top gold buyers in 2023 BRICS (Brazil, Russia, India, China and South Africa). This is important information in the context of the current geopolitical situation in which the world economy is slowly beginning to divide into two main blocs: one focused on the United States and the other focused on China.

The price of gold is getting closer to the ATH

Gold prices remain relatively high due to the weakening of the US dollar and recent economic data fueling expectations that Federal Reserve approaching the end of the rate hike cycle. As a result, commodity prices are still close to historical peaks. In addition, the low level of the dollar index made the bullion more affordable for buyers using other currencies.