There has been a noticeable shift in the market when it comes to gold prices. We saw a jump last Friday with there being a 1% gain. This was after a small loss that took place the week prior. The drop occurred due to the rise in US jobs but then the Silicon Valley Bank news turned things in the opposite direction for the stock market.
Due to this news, there was a drop in the stock pricing for various lenders in the tech sector. Some saw drops of up to 60% within a day as investors were looking to sell their shares as soon as possible. With more and more news going out about the lending space and potential cracks developing, investors lost further trust in the sector. This included the news of SVB Financial looking at a sale.
With all of this happening, we started to observe a change in gold prices. When the story came out, it jumped $20 and then another $25 by Friday afternoon.
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Inside the SIVB Crash
Various opinions were coming in about what the Fed would do when it came to the interest rate. This included a potential 0.5-point hike in the middle of March. This started to drop based on how the pricing was being done by the markets.
On the same note, bond prices started to rally due to this news. It led to the US Treasury yields (10-year) dropping. This was a drop that happened after three weeks with a rate of 3.81%. This was a near 0.25-point drop after going to 4%. It was something the market has not seen since late last year. When this started taking place, the gold bullion prices rose to highs that hadn’t been seen for months.
It is also important to observe the inflation-protected TIPS yields. They started to sink when the bond prices rose. This meant any rise that took place was gone and the inflation rate started to go to 2.24% for the next ten years.
We also say there was a sharp drop across the week in the crude bond market forecast. This hadn’t been seen since the spring of 2020 and that was due to external factors such as Covid that were wreaking havoc on the markets.
When it came to the labor stats in the US, it was time to take a look at the number of works that were included in non-farm US payrolls. The numbers rose by 311,000 in February based on the information coming from the US government. This was significantly below the January figure, but still above the forecasts by 51%.
For the average earnings growth, there was an acceleration but the forecasts were still missed. We saw the number f hours that were worked had gone down even with the unemployment rate being what it was. The rate had gone up by 0.2% after being at 3.4% in January.
Also Read: Can We Trust the US Banking System Anymore?
The gold prices were getting to new highs due to how the US dollar was going. The markets have hit new lows that haven’t been seen for a couple of months based on the MSCI World Index. This includes Japan’s Mitsubishi UFJ going down by 6.1% and the Chinese bank ICBC going down by 1.3%.
As for HSBC in the UK, it was down by 5% and Deutsche Bank in Germany dropped by 7.3% along with BNP Paribas in France dropping 3%.
SIVB was working with numerous tech companies in the US and played a major role in their financing setup. When SIVB took a hit, this meant the partners were also impacted and there was a drop in venture capital funding. This is not good for the clients.
SIVB was putting in the funding needed for these tech companies to continue to move forward with their operations. When the funding was not there, this meant they didn’t have the liquidity to do as they need to. It is not easy for these companies to now go out and get funding due to the higher interest rates on the open market.
Banks don’t want to go into this sector as freely as they might have during another time of the economical timeline. What was being seen with SVB is not what other banks want for their balance sheets.
The reason we noticed there was fear in the market had to do with the potential for “held to maturity” bonds. The way things are done, these bonds don’t show up on balance sheets but when they begin to lose value, it is common for them to be sold. This is when regulators begin to pay attention to what’s going on.
When SIVC dropped, this also impacted others in the banking sector including Bank of America (-6.2%), J.P. Morgan (-5.4%), Wells Fargo (-6.2%), and Citigroup (-4.1%).
This type of pricing is not good for the equity markets as there has been a noticeable drop in crude oil (-5%) and copper. On the other hand, we have seen Silver go up.