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Risk-Aversion Sentiment Rises; Gold Assets Likely to Trade Higher Amid Volatility
Release time:
2023-03-21
Since March 8, the gold market has staged a robust rally, driving up the performance of precious-metals-themed funds. Institutional analysts believe that central banks worldwide will continue to increase their gold holdings, which could inject fresh momentum into gold assets.
Risk-aversion sentiment in the market has risen markedly.
On the evening of March 15, Credit Suisse opened down nearly 30%, hitting a record low, before the decline narrowed and the stock staged a modest rebound. Earlier, the bank’s one-year credit default swap (CDS) spread had surged to close to 1,000 basis points, while disclosures of internal-control issues and a major shareholder’s refusal to provide further capital injections only compounded the pressure on its share price. Meanwhile, the U.S. Treasury stated that it is closely monitoring Credit Suisse’s situation.
Earlier, on March 9, Silicon Valley Bank’s stock price plummeted by 60% in a single day, dragging down the S&P 500 index, and U.S. banking regulators announced the closure of Silicon Valley Bank. On March 10, Signature Bank also faced a bank run amounting to several billion dollars. Subsequently, the bank sought buyers or other solutions to shore up its financial position, but failed to complete asset sales in time and ultimately collapsed.
A series of events has intensified risk-aversion in the market. Since March 8, the precious-metals market has remained broadly strong, with New York COMEX gold reaching a intraday high of $1,942.50 per ounce—the second-highest level since February—and New York COMEX silver climbing as high as $22.525 per ounce. Funds focused on precious metals have also surged: as of Thursday, the QDII fund with the largest weekly gain was E Fund Gold Theme A USD, up 4.67%; in addition, SDIC UBS Silver Futures rose 5.26%, ranking third among all market funds, while Qianhai Open Gold, Silver & Jewelry A advanced by 3.96%.
Gold is expected to enter a volatile upward trend going forward.
With banks in the United States and Europe collapsing one after another in quick succession, what will be the future trend of the gold market?
Wang Xiang of Bosera Fund believes that international gold staged a notable rebound in the latter part of last week. The Silicon Valley Bank crisis has brought to the fore the impact of the Federal Reserve’s rate hikes on financial-system stability, potentially constraining the Fed’s future rate-path and thereby providing support for gold assets. Domestically, intra-day inflows into gold ETFs have once again been fairly pronounced, while off-exchange retail investor flows have remained relatively limited. The challenges posed by deglobalization and the fragmentation of economic blocs to the U.S. dollar system have become even more evident—this may also explain why the People’s Bank of China continued to increase its gold holdings in February and why the Monetary Authority of Singapore has rapidly expanded its gold reserves. Given the current global political and economic environment, we believe that central banks around the world will not halt their gold accumulation, and such activity could, as it did last year, inject fresh momentum into gold assets. Overall, the price correction in gold appears to be nearing completion, with strong support around the $1,800 per ounce level, suggesting that gold prices may soon resume a volatile upward move.
Nanhua Futures believes that the medium- to long-term outlook for precious metals remains bullish; however, given the recent sharp short-term rally, investors should exercise caution when chasing further gains and consider reducing existing long positions on rallies. Any pullback, in turn, should be viewed as an opportunity to establish medium- to long-term positions.
Regarding the future outlook for gold prices, Noah Asset Management believes that the frequency and impact of Fed policy moves that have exceeded expectations are both diminishing. However, the effects of rate hikes on the U.S. economy, corporate earnings, and financial markets are now being fully reflected—one by one. These include downward revisions to earnings forecasts for the S&P 500 in overseas markets, as well as the recent collapse of Silicon Valley Bank and the default by Blackstone Group. The resulting instability in U.S. and global financial markets, coupled with heightened risk-aversion sentiment, will likely support gold prices in the short term. Although the Federal Deposit Insurance Corporation, as the regulatory authority, swiftly took over Silicon Valley Bank in an effort to prevent further escalation of financial risks, the bank’s failure underscores the possibility that the Fed’s hawkish monetary policy could soon face countervailing pressures from calls for financial stability. Reported by journalist Wang Jinping.
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