Gold Goes Bonkers; Hits ‘60,000’ Amid Global Uncertainty!
Gold, an age-old safe haven asset takes the first spot on investors’ preference list when global uncertainty is looming around. Investors invest in not to get a high return but to safeguard their portfolio in times of a falling market, high inflation, geopolitical tensions etc.
Recently, the gold April 2023 futures contract on MCX has been delivering a dream run for investors. From a low of INR 54,771 on 9 March 2023 to an all-time high of INR 60,455 in today’s session, this yellow metal has delivered a mind-boggling rally of 10.3% in a mere 8 trading sessions. Why is it mind-boggling? Well, that’s noticeably higher than the yearly returns from gold. It is one of the sharpest rallies in this bullion I’ve seen in the recent past.
Why gold is again glittering? Such a huge demand should not be ignored by equity investors. The global scenario is panning out to be quite uncertain despite the regulatory measures to safeguard the collapsing banking sector. The recent UBS takeover deal of Credit Suisse (SIX:) was expected to calm the spooked market, however, the rush to safe haven is telling a different story.
Credit Suisse shares plummeted more than an eye-popping 62% on Monday to CHF 0.69, by 2:27 PM IST. In fact, the share price of UBS also took a hit of 12% to CHF 15.04. But if such banks have been easily bailed out then what is the current panic all about?
After the collapse of Silicon Valley Bank and Signature Bank in the US, FDIC (Federal Deposit Insurance Corporation) came forward to safeguard the deposits of all depositors. However, lenders to the bank and equity shareholders’ stake went for a toss ‘completely’. All their investments were written off to 0 which is a serious dent to investors’ sentiment in the banking sector.
Now, after the UBS takeover deal of Credit Suisse which essentially saved the bank (at least for now) also came with a mass destruction of lenders’ money. Swiss financial regulator Finma declared that a gigantic US$17.3 billion of AT1 bonds of Credit Suisse will be written off to 0.
The regulators are only focusing on keeping depositors’ confidence alive in the banking system by protecting their money, which is not bad. However, as one after other skeletons are cropping up, it’s the investors and/or lenders who have been taken for a ride and that is a real concern. Investors are now looking to park their money in arguably one of the safest assets on the planet – gold, as looking beneath the surface, regulators are failing big time to contain the contagion.
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