A Credit Crunch Is Coming. What Does That Mean For Precious Metals?

2023: A Year of Opportunities and Challenges for Traders

There is no denying that 2023 is certainly shaping up to be an incredibly action-packed year for traders – bringing with it a series of money making opportunities from re-accelerating inflation, a monetary policy dilemma for central banks to signs of an escalating “Global Financial Crisis 2.0”, tearing through the markets.

And just in case that wasn’t exciting enough – traders are now on the cusp of being gifted with even more lucrative opportunities with a looming “Global Credit Crunch” – which may ultimately lead to the most hotly anticipated event of all – A Fed Policy Pivot.

Soaring Interest Rates: The Cause of the Banking Crisis

After two weeks of banking turmoil, that began in the U.S and has rapidly spread across the global banking system – the Federal Reserve once again hiked its benchmark interest rate for the ninth time last Wednesday.

The Fed has now jacked up interest rates at the fast pace in history – from virtually zero to a current range of 4.75% to 5% – the highest rate since 2007. Put another way, that’s a whopping total of 475 basis points of hikes since March 2022.

The fed also signalled that it might be nearing the end of its rate-hike cycle – because a decline in bank lending could help the central bank “unintentionally” achieve its overarching goal of slowing the economy and taming inflation.

In other words: a global “Credit Crunch” is coming.

During his press conference last week, Fed Chair Jerome Powell confirmed that banking industry stress could trigger a “Credit Crunch” with significant implications, resulting in stricter lending making it extremely harder for individuals and businesses to qualify for loans, mortgages and credit. Powell concluded by saying “tighter lending conditions will have the same slowing effect on inflation that a rate hike can have”.

Historically, the Federal Reserve has never been right on monetary policy and has a proven track record of setting the economy up for an even bigger crisis ahead.

And that’s exactly what we’re seeing play out, once again!

The collapse of several prominent banks in recent weeks from Silicon Valley Bank to Signature Bank as well as the disorderly implosion of Credit Suisse and panic around Deutsche Bank and Wells Fargo being the next major banks on the verge of failure – has traders convinced that this could just be the tip of the iceberg.

Conclusive evidence shows the global banking crisis was fuelled as a direct consequence of soaring interest rates and liquidity risks. But this crisis is now about to get even bigger as it rapidly morphs into a “Global Credit Crunch”.

Precious Metals Benefit From Crises

Right now we have crisis on top of crisis, which as traders know – translates to opportunity on top of opportunity. While Precious metals certainly don’t need a crisis to move higher, they definitely love a crisis – as we have seen on multiple occasions throughout this month.

Whichever way you look at it, one thing is clear. The case for Precious metals in a well-diversified portfolio has never been more obvious than it is right now!

Commodity Price Forecast for the Week

Where are prices heading next? Watch The Commodity Report now, for my latest price forecasts and predictions:

For a look at all of today’s economic events, check out our economic calendar.