Bank Stocks Plummet and Gold Soars: The Latest Financial Market Turmoil3-min read

Falling Bank Stocks and Rising Commodity Prices Shake Up Financial Markets

Global bank shares and short-term US Treasury yields fell on Monday following the collapse of Silicon Valley Bank (SIVB.O). The USD also declined, as safe-haven buying boosted gold and silver prices. Bond markets repriced rate hike bets, with traders now predicting a 25-basis-point rate hike from the Federal Reserve next week, with some even expecting no raise at all, making gold, which does not yield interest, more attractive.

After falling 3.8% on Friday, Europe’s bank index (.SX7P) fell nearly 6%. After acquiring Silicon Valley Bank’s UK unit for 1 pound ($1.21), HSBC’s London-listed (HSBA.L) shares fell. As new financing failed to allay concerns about bank contagion, regional bank stocks fell, with First Republic Bank (FRC.N) leading the decline. Swiss financial regulator FINMA said Monday it was looking for contagion risks for banks and insurers.

The Fed and the US Treasury announced actions to stabilize the banking system over the weekend, including giving SVB (SIVB.O) depositors access to their funds on Monday. The second bank failure in two days was at Signature Bank (SBNY.O) in New York. Experts said that the Fed should take collateral at face value instead of marking it to market so that banks could borrow money without selling assets for less than they were worth.

Traders now predict a 25-basis-point rate hike from the Federal Reserve next week, with some even expecting no raise at all, making gold, which does not yield interest, more attractive. In a report, Goldman Sachs analysts no longer expect the Fed to raise rates on March 22. Some were wary. James Rossiter, head of global macro strategy at TD Securities in London, said central banks like the ECB, Fed, and Bank of England will clarify market volatility.

Short-term US Treasury yields fell, raising prices. The two-year note’s yield went below 4% for the first time since October and was on track for its worst one-day decline since October 1987, after Black Monday’s stock market disaster.

Since it must now consider financial stability, the European Central Bank is poised to raise rates by 50 basis points on Thursday and signal further tightening.

Gold Prices Surge as Safe-Haven Buying Takes Over

The dollar index fell 0.6%. The Euro climbed 0.8%. Latin American currencies fell 3.7%, including Mexico’s peso. Gold rose 2.4% to its highest level since early February. US futures rose 2.6% to $1,916.50. Brent crude futures fell 2.4% to $80.77. The global benchmark dropped to $78.34, its lowest price since early January. West Texas Intermediate crude futures (WTI) CLc1 fell $1.88, or 2.5%, to $74.80 a barrel after hitting its lowest since December.

Overall, falling bank stocks and rising commodity prices in precious metals are causing concern among traders and investors. The collapse of Silicon Valley Bank and the potential for bank contagion risks are putting pressure on global bank shares and short-term US Treasury yields. The repricing of rate hike bets is also causing uncertainty. Safe-haven buying is boosting gold and silver prices, with traders now predicting a 25-basis-point rate hike from the Federal Reserve next week.