Gold Futures Rise $20 Despite a Possible Easing of the Banking Crisis

Concerns of Banking Crisis and Potential Negative Economic Fallout

Although some concerns regarding the banking crisis might be subsiding, there continues to be potential negative economic fallout. It is unclear whether or not the recent bank failures are limited to those banks identified or whether the failure of SVB and Signature Bank of New York are precursors to more banking failures.

Inflation continues to be elevated and troublesome for individuals, companies, and the economy. Interest rates remain elevated as the Federal Reserve has raised its terminal rate at every consecutive meeting since March 2022. The rate hikes by the Fed are intrinsically designed to create an economic contraction to diminish inflation and many economists believe this will ultimately result in a recession.

The Trilemma of Inflation, Growth, and Financial Stability

According to top economist Mohamed El-Eran, these issues have led to a ‘trilemma’ of problems that has cornered the Fed. In an interview with CNBC yesterday El-Eran said, “The Federal Reserve is once again juggling a complicated “trilemma of problems — but this time, there’s no good policy move it can make in the fallout from banking”.

“It’s not just a dilemma of inflation versus growth, it’s a trilemma — inflation, growth, and financial stability. And we don’t have a good way out of it, turmoil…The truth is there is no first-best policy response anymore. Everything would have collateral damage and unintended consequences.”

Gold Pricing Supported by Trifecta of Issues

The trifecta of issues that the Federal Reserve faces have been highly supportive of gold pricing. As of 2:40 PM EST gold futures basis the most active April contract is up $20.30, or 1.06%, and fixed at $19744.60. Gold unsuccessfully challenged and traded above the key psychological level of $2000 on three occasions last week. Although unsuccessful on Monday, Thursday, and Friday of last week it is the first instance of gold trading above $2000 since April 2022. Gold trading above $2000 per ounce clearly shows the overwhelming bullish resolve of market participants.

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Wishing you as always good trading,

Gary S. Wagner