US Banking Sector Turmoil Gives Precious Metals a Market Boost

The precious metals market experienced a boost amid a recent banking crisis that has seen three major banks become insolvent. Gold prices rose to more than $1,900 per ounce and nearly reached the $2,036 per ounce high seen in July 2020 in the wake of the third-biggest bank failure in America’s history.

After consecutive interest rate hikes by the U.S. Federal Reserve caused the value of Silicon Valley Bank’s investments in long-term, higher-yield, mortgage-backed bonds and securities bonds to plummet, the bank began scrambling to fill the large hole in its balance sheet. Efforts by the bank to offset the balance sheet by selling off assets failed, and the Federal Deposit Insurance Corp. seized SVB’s assets while customers withdrew their funds from the bank en-masse.

A few days later, regulators announced the closure of Signature Bank, which also had deep ties to big tech, much like SVB.

The turmoil in the banking sector supported gold and U.S. treasuries as the events triggered speculation of increasing credit event risk. As regulators begin to stress-test banking institutions to see if SVB’s problems were contained or will spread through the banking sector, more investors may choose to put their money in safe-haven assets such as gold and silver.

The recent collapse of SVB and Signature Bank mirrors the collapse of Lehman Brothers more than a decade ago, which played a central role in the development of the Great Recession. This collapse could trigger fears of an incoming recession and cause more funds to flow into safe-haven assets as investors seek to preserve the value of their holdings.

Precious metals have traditionally acted as safe-haven investments during times of economic upheaval because, unlike fiat currencies such as the dollar, their value remains steady regardless of economic upheaval. These metals

tend to see a surge of investor interest when markets falter and perform relatively well during economic downturns.

However, gold did not perform as well as expected in 2022, despite poor economic conditions as high-interest rates increased the opportunity cost of holding gold and encouraged investors to pour their funds into assets that pay interest.

Prices began to pick up in mid-2022 as central banks around the world stepped up their gold purchases and demand for gold among central banks remained high through the year and into 2023. With the recent turmoil in the banking industry, we can reasonably expect more funds to flow to the precious metals market, especially now that major banks such as SVB are collapsing and making it difficult for people to access their hard-earned funds.

Pure Gold Company CEO Josh Paul said that the crisis has left plenty of customers panicked and may encourage them to transfer their funds out of the banking system by buying physical gold.

As investors channel their funds to safe haven assets such as precious metals, entities operating in this space, such as Hecla Mining Company (NYSE: HL), will offer greater value to their shareholders despite the ongoing economic turmoil.

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