Money is being withdrawn from US banks in large numbers, gold prices skyrocket to near historic peak
Bad news and a wave of bank runs in the US have put the world on the brink of a new crisis. Meanwhile, gold prices have surged to near historic highs as money seeks shelter.
The world financial market continues to fluctuate unpredictably. In the US, stocks continued to fall sharply for the fourth consecutive session on May 4. Two more US bank stocks plummeted (sometimes losing 60% in a session) and trading was suspended several times.
Western Alliance Bank shares fell 50-60% at times and were suspended several times due to extreme volatility.
Shares of PacWest Bank fell as much as 60% at one point, following reports that the California-based bank was reviewing its strategic options, including a possible sale.
Fears of a regional banking crisis continue to grow.
At the end of the trading session (early morning of May 5, Vietnam time), PacWest shares fell more than 50%. Western Alliance shares evaporated 38%.
Earlier, on May 1, the United States witnessed the second largest bank collapse in history. JPMorgan Chase Bank officially acquired all deposits and most of the assets of First Republic Bank (FRB) after the US Government seized all of the bank's assets.
This is the fourth US bank to go bankrupt since March 2023 after Silvergate Bank, Silicon Valley Bank (SVB) and Signature Bank.
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PacWest Bank shares fell more than 50% in the session of May 4. Source: CNBC
Shares of many regional banks in the US continued to fall due to additional pressure after the US Federal Reserve (Fed) raised interest rates for the 10th time by 25 basis points on May 3 (a total increase of 500 basis points from a record low of 0-0.25% to 5-5.25%).
Many experts believe that the US banking sector will continue to face difficulties until the Fed cuts interest rates. The continued high interest rates will cause more stress and the possibility of more bank failures cannot be ruled out.
High interest rates over the past year have caused many banks to lose money on previously unattractive investments. In addition, the withdrawal of money from small and regional banks has caused the banking crisis to spread.
The difficulty may persist as inflation remains high (5% compared to the 2% target) and the Fed is clearly unlikely to reverse its tight monetary policy anytime soon.
Financial markets in turmoil, gold near historic peak
In contrast to the weaker USD and the withdrawal of money from many banks, the gold market is bustling and the price is rising. Money flows strongly into this precious metal.
In the session on May 4, when concerns about a US recession increased, money flowed into safe-haven assets, including gold.
The precious metal edged closer to an all-time high, rising 0.3% to nearly $2,046 an ounce. That’s slightly below the record high of $2,072.49 an ounce hit earlier.
On CNBC, David Meger, director of metals trading at High Ridge Futures, said that US inflation will continue to be persistently high. This means that the Fed does not necessarily need to cut interest rates soon.
According to many experts, money will continue to be withdrawn from banks and poured into bonds (which have high yields) and gold.
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| Gold prices increase sharply. Photo: GB |
On Kitco, expert Andrew Axelrod said that the banking crisis is just beginning. He emphasized that many banks have deep ties to the commercial real estate sector, while this sector is at risk of collapse due to the trend of remote work and businesses are shrinking their operations.
Axelrod believes that economic uncertainty could push gold to $3,000 an ounce in the next 12 months. “$3,000 an ounce is not crazy,” he said.
Central banks around the world have been buying gold recently. This trend is likely to continue.
