Column: Electric dreams turn into a nightmare for battery metals
A sector that was once racing to build new supply has been closing mines and deferring projects as low prices bite into the cost curve.
Gold prices surged on Monday as the metal’s safe-haven appeal drew in investors spooked by the collapse of Silicon Valley Bank, with the crisis also sparking hopes the US Federal Reserve would have to slam the brakes on its aggressive monetary policy.
Spot gold rose 1.5% to $1,905.82 per ounce by 12:15 p.m. New York time, its highest level in a month. US gold futures also shot up 2.3% to $1,911.70 per ounce.
[Click here for an interactive chart of gold prices]
The second-largest collapse of an American lender in history has sparked nervousness about potential spillover effects across the financial system and prompted US officials to move to protect depositors’ funds on Sunday. Global share markets subsequently tumbled, while the dollar extended its decline.
The bank failure has also driven a massive shift in expectations for more hikes by the Fed, with swaps markets now seeing no more increases this year as the most likely outcome. Benchmark 10-year Treasury yields plunged to the lowest in over a month, supporting the non-yielding bullion.
“With two-year yields almost down 1% in less than a week and the market increasingly pricing away the prospect for a rate hike, gold has to go higher,” said Ole Hansen, head of commodities strategy at Saxo Bank A/S. “Gold is the most rate- and dollar-sensitive commodity.”
It represents a rapid turnaround for gold, which has now jumped past its 50-day moving average, signaling a change in momentum. The metal had already surged 2% on Friday after US jobs data pointed to easing inflationary pressures in the labor market.
“Any escalating financial sector distress would almost certainly see an initial gold selloff to raise liquidity, followed by fresh safe haven buying,” Rhona O’Connell, an analyst at StoneX, wrote in a Bloomberg note. “Its perceived market role likely now to revert to risk-hedging as the headline element.”
The US consumer price index due Tuesday may also influence the Fed’s next move. Traders will be watching for signs fear is spreading to other commercial banks.
“Gold looks very much like it is fulfilling its mandate as a safe haven, with support from short covering of long exposures,” Bart Melek, head of commodity markets strategy at TD Securities, told Reuters.
Also benefiting from the SVB fallout are other precious metals including silver, which gained 5.2% to trade at $21.84 per ounce. Palladium and platinum rallied 5.1% and 3.2%, respectively, to $1,460.48 and $998.71 per ounce.
“A lot of investors are looking to the precious metal space as a safe haven against this volatility and this risk… amid a much lower interest rate environment, and the US dollar that’s dropping, which is lifting their prices,” Melek added.
(With files from Bloomberg and Reuters)
