Gold Prices Rise as Regional Banking Crisis Looms

Arjan Schreur Feb 03, 2024
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gold coins and gold bars

Gold Prices Rise for the Week as Regional Banking Crisis Looms

Despite a stronger-than-expected labour market and more hawkish rhetoric from the Fed, gold prices rose for the week. The precious metal lost about $20 on Friday following the release of the January Nonfarms Payroll report which saw the US economy add more than 353,000 new jobs. The unemployment rate helped at 3.7% compared to consensus analyst estimates of 3.8%. 

 

Still, even with the late-week decline, gold hit record-high prices earlier in the week. The COMEX April futures contracts settled at $2,056.80, good for a gain of about 2.0% for the week. 

 

Another catalyst that reared its head this week was continued weakness in the US regional banking sector. While it wasn’t as drastic as the bank runs that took place last March, it was enough to ward off any bearish sentiment for risk-off assets like gold. The New York Community Bancorp (NYSE: NYCB) fell by more than 42% this week after reporting exposure to commercial real estate and cutting its dividend. The stock bounced back by 6.0% on Friday, but much of the damage had already been done. 

 

Finally, investors continue to weigh the odds of a Fed interest rate cut at some point in 2024. As of now, the odds of a March cut continue to fall which points to May as the likely month that the Fed could begin its pivot. Interest rates traditionally have an inverse effect on the price of gold. As interest rates come back down to reasonable levels, we could see an increase in investor interest again. 

 

Traders should note that January has also historically been one of the more bullish months for gold. It has shown resilience and an ability to hold key support levels despite risk-on assets like cryptos and growth stocks continuing to climb higher as well. Usually, we see a cooling-off period and a pull-back in February so it will be interesting to see how well gold holds above the $2,000 level over the next few weeks. 

Precious Metal Stocks and ETFs

It wasn’t a strong week for gold miners or the broader MIGL sector. On Friday, the sector saw a decline of about 10.7 basis points with nearly all of its components in the red. Of note, Gold FIelds ADR (GFI) was down by more than 8.1%, Eldorado Gold Corp (EGO) lost 4.11%, and Agnico-Eagle Mines Ltd (AEM) fell by 3.93%. 

 

The VanEck Gold Miners ETF (GDX) fell by 1.02% for the week and the VanEck Junior Gold Miners ETF (GDXJ) lost 1.22% over the past five days. Although miners declined, the SPDR Gold Shares ETF (GLD) added about 0.16% while the iShares Gold Trust (IAU) was also up modestly by about 0.13%. 

Silver miners were also in the red for the week as the MISI silver miner sector posted a negative reading on Friday, shedding about 5 basis points. Silver futures contracts declined alongside gold as the metal lost about 2.12% during Friday’s trading session. 

What’s in Store Next Week for the Precious Metals Markets?

The heart of Wall Street’s earnings season is over and we should see a more stable equities market moving forward from here. There isn’t much in the way of economic data for next week aside from the ISM Services PMI so it shouldn’t be too volatile a week for gold and silver. 

 

Escalating tensions in the Middle East could have an impact on global markets come Monday. As well, Fed Chairman Jerome Powell is giving an interview with the US news show 60 Minutes. Some are anticipating a hawkish tone to his interview to reel in the markets.