Today's Saxo Market Call podcast
Global Market Quick Take: Europe
Gold and silver trades higher for a second day as the fallout from Friday’s collapse of Silicon Valley Bank continues to reverberate around the market. Despite the US authorities stepping in with liquidity measures and a new lending program in order to reduce the risk of contagion, the across-market action so far this Monday highlights the elevated unease with bank-led equity market weakness continuing while safe-haven bonds and precious metals remain bid.
Last Wednesday both gold and silver were looking for support after Federal Reserve Chair Powell stepped up his attack on sticky inflation. During his semi-annual two-day visit to Capitol Hill, he told lawmakers that he was prepared to increase the pace of rate hikes to a higher-than-expected level should incoming data continue to show strength. The market responded accordingly by pricing in close to four additional 25 basis point rate hikes before yearend while the yield on US 2-year Notes jumped above 5%.
Fast forward to today and gold and silver trade up more than 4% and 5% respectively while the mentioned 2-year yield has slumped to around 4.2%. In addition, the market has gone from pricing four rate hikes to less than one, and with the first cut seen before end of year. Adding to this a softer dollar and precious metals have received the support needed to force a change in focus and sentiment.
Furthermore, the sudden change in direction has left many speculative accounts or hedge funds scrambling to rebuild expose having made deep cuts in response to the early February sell off. According to still delayed data from the US CFTC, speculators in the week to February 21 held a 52.5k lots net long in gold, down 53% in just three weeks while the net long in silver was close to neutral after speculators cut length by 82% to 5.6k contracts.