Gold & Silver Rally On A Major Bank Closure By FDIC

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The big news last Friday was not the increase in February jobs, but the Silicon Valley Bank (SVB) failure, which affected all the financial markets. SVB was shut down by Federal Deposit Insurance agency on Friday, and is the biggest bank failure since the global financial crisis of 2008. As of the end of December, SVB had roughly $209 billion in total assets and $175.4 billion in total deposits.

The closure of SVB impacts not only the deposits, but also credit facilities and other forms of financing. Concerns that other banks will fail like SVB raises the chances that the Federal Reserve will moderate the pace of interest rate hikes and pivot sooner rather than later, adding rather than taking liquidity out of the economy.

On Friday, Gold traded down $5 after the U.S. Bureau of Labor Statistics reported that February jobs increased to 311,000, but rallied quickly after the FDIC reported closure of the Silicon Valley Bank. In times of uncertainty in the financial markets, investors and central banks run to Gold, the best safe haven asset. Gold rallied $32.70 to close at $1,866.70 per ounce.
The financial market’s reaction to the potential of more regional and smaller banks failing could be the catalyst for the coming run in the Gold price, driving it to a new high over $2,075 per ounce.

Other financial markets reacted to the closure of SVB immediately; Equities, the U.S. Dollar, and Bitcoin all declined sharply. The DJIA dropped 345.22 pts, the U.S. Dollar Index fell below 105, and Bitcoin crashed below 20,000.

Today: The financial markets and Federal Reserve continue to react to the collapse of Silicon Valley Bank. While on Sunday, New York state regulators shut down Signature Bank; a big lender in the crypto industry.

The financial markets believe it is likely that we have seen the end of higher interest rates, and the Fed will stop draining liquidity from the financial markets. It is more likely that the Federal Reserve will be adding liquidity to the markets to shore up confidence for regional and local banks.

Based on the above concerns Gold opened higher this morning and kept on moving higher, reaching a high of $1,914 per ounce before seeing some light selling. A lower U.S. Dollar Index also contributed to Gold’s rally.

Silver also reacted to the February Jobs number and the SVB news. Silver opened lower, dropping below the key $20 support level. Silver reached a low of $19.88 before the SVB news came out, and immediately rallied $1.00 per ounce. Silver reached a high of $20.90 before seeing light short-term profit taking. Silver closed at $20.56 per ounce, up $0.43 for the day.
The Silver-to-Gold ratio rocketed Friday to over 90-to 1.

Today: Silver suffered a large decline in price due to concerns about higher interest rates, now we are seeing the opposite. The Silver’s price reaction to today’s Fed reversal in policy was highly explosive. This morning Silver opened higher and move up quickly, reaching $22.05 before seeing light selling.