The gold standard of panic – Newspaper Kommersant No. 47 (7492) dated 03/21/2023

The cost of gold on the world market has exceeded the level of $2 thousand per troy ounce, having updated the maximum since March 2022. Prices in Russia do not lag behind either, where exchange quotations exceeded 5,000 rubles per year. Western authorities are actively pumping money into the banking system to support it. This leads to acceleration of inflation, against which gold acts as a protection. If the Fed’s monetary stimulus is maintained, prices for the precious metal may rise up to $2.1-2.2 thousand per ounce on panic buying, market participants believe.

The cost of gold on the world spot market on March 20 rose above $2,000 per ounce for the first time in a year. The precious metal hit $2,009.84 an ounce, the highest since March 9, 2022, according to Investing.com. This is 1.1% higher than Friday’s close. On the Moscow Exchange, the price of gold rose to the level of 5.04 thousand rubles per year, the maximum since April 21 last year. Prices failed to maintain their levels, and by 18:00 they dropped to $1,970 per ounce and 4.94 thousand rubles/g, respectively, but even taking into account the correction, they remained near multi-month highs, having added 8.7–11 in a week and a half %.

The rapid growth in the value of the metal is taking place against the backdrop of the ongoing banking crisis in the US and Europe, which is trying to stop the local financial authorities.

Over the weekend, the Fed announced a decision to team up with regulators in Canada, the UK, Japan, Switzerland and the ECB to coordinate efforts to expand liquidity provision through permanent US dollar swap lines.

On Sunday, the Swiss National Bank brokered a $3.24 billion deal for UBS to acquire another major bank in the country, Credit Suisse, to prevent the latter from collapsing. The financial regulator provided a $108 billion liquidity guarantee to the merging banks, in addition to a previously announced $54 billion loan.

However, the steps taken, according to Igor Dodonov, an analyst at FG Finam, could not completely reassure investors who fear that problems in the financial sector may turn out to be much deeper than it seems at the moment. “Now the market value of the assets of the US banking system is $2.2 trillion less than their book value. Despite the measures of the Fed and the US Treasury, up to 200 banks in the country may face the same problems as the failed SVB (Silicon Valley Bank, in early March, the California Financial Protection Department announced about his bankruptcy.— “b”),” notes Oleg Fedorovich, financial analyst at Otkritie Management Company.

Under such conditions, international investors are actively moving away from risky equities into protective ones, such as US Treasury bonds, money market funds, and gold (see below). “Kommersant” dated March 20).

According to the agency Bloomberg, over the past week, the assets of ETFs investing in the precious metal rose by almost 22 tons, to 2877 tons, which is the highest weekly gain since March 2022. Interest in gold is supported by growing liquidity and expectations of easing the Fed’s monetary policy. Last week, the American regulator issued an issue worth about $250 billion to pay compensation under guarantees from the US Treasury.

As a result, the rise in metal prices may continue, regardless of the upcoming decision of the Fed on the rate. Investors are now pricing in a 60% chance that the Fed will raise rates by 25 bp. and the probability that the rate will not change is 40%.

“If the Fed makes it clear that it will start easing monetary policy soon, this will lead to a further decrease in US Treasury yields and will be positive for gold. If the American regulator maintains tough rhetoric, market participants will increase their fears of a recession and the purchase of protective assets, including gold,” say SberCIB Investment Research experts. According to Vasily Karpunin, head of the Information and Analytical Content Department at BCS World of Investments, if prices fix above $2,000 per ounce, a psychological factor may come into play and a panic buy will occur, which could raise prices to $2.1–2.2 thousand per ounce. ounce.

Vitaly Gaidaev