Three Major Banks Collapse in a Week
After three major bank failures in a week, gold surged as investors flocked to safe havens. First crypto-oriented Silvergate Bank fell. Then US regulators closed Silicon Valley Bank after depositors rushed to withdraw all their funds. It was the second largest bank failure in US history. Second only to the 2008 Washington Mutual failure. Signature Bank also collapsed, becoming the third largest US bank failure. The banking crisis is rattling markets and threatening the value of retirement funds.1,2
Silvergate Bank collapsed initially. Its failure helped ignite the panic over banks with high levels of uninsured deposits. Then, Silicon Valley Bank shares plunged 60% before regulators shut the bank down. Hundreds of billions of deposits and assets were effectively wiped out. Now experts fear the meltdown will undermine the entire banking industry.
Billionaire hedge fund manager Bill Ackman has compared SVB to Bear Stearns. Bear Stearns was the first lender to collapse at the start of the 2007-2008 global financial crisis.
“The risk of failure and deposit losses here is that the next, least well-capitalized bank faces a run and fails, and the dominoes continue to fall,” Ackman said.3
Signature Bank was heavily tied into the crypto industry. They had 40 branches and more than $200 billion in assets and deposits. The SVB collapse fueled its failure. Nervous investors withdrew more than $10 billion. Regulators took over Signature to protect depositors and the stability of the US financial system.
The Treasury Department, Federal Reserve and FDIC made a joint announcement. They said depositors will be protected above the $250,000 FDIC guarantee. Accounts will not be frozen. The statement said in both the Signature and SVB cases, no losses would be paid for by taxes. How this plays out, however, remains to be seen.
Gold Surges in Response
The price of gold is soaring as these banks fall. The precious metal hit a one month high after jumping 2% last Friday, breaking $1,900. Gold rose during the last banking crisis. $7.4 trillion in stock wealth lost after the 2008 Financial Crisis.4 The Dow dropped from 14,000 to 6,900. Meanwhile, physical gold went from $650 to a historical high of $1950. Silver went from $7 to $48.00.5
Gold’s momentum is rising for several reasons. First is a desire for safe haven assets to protect wealth as markets collapse. Second, 10-year Treasury yields plunged, and the dollar weakened. Lower bond yields reduce the opportunity cost of holding a metal that pays no income. A weaker dollar lifts the price of commodities that are denominated in the U.S. currency. “Gold has to go higher,” said the head of commodities strategy at Saxo Bank A/S. “Gold is the most rate- and dollar-sensitive commodity.”6
Third is the belief that the collapsing banks and a slow job report will force the Fed to relent on interest rate hikes. Analysts say the failures are an unforeseen consequence of the most aggressive rate hikes in decades. Markets now predict there will be no more increases this year. The Fed would be stopping the hikes as high inflation persists. High inflation, milder interest rates, and a weaker dollar are a perfect formula to raise gold prices.
The chief investment officer at St. Gotthard Wealth said, “Should we continue on this hiking path, something will break, and then they will be forced to cut at a time when inflation may not be rooted out. That of course is extremely bullish for gold.”7
Panic is spreading and the situation remains fluid. The powers that be are going to do whatever it takes to prevent a repeat of the 2008 Financial Crisis. Buying gold is shaping up to be the one agreed upon solution to preserve wealth right now. A Gold IRA from American Hartford Gold can shield your savings from a collapsing financial system. Contact us today to learn more.
