Gold was up 9.2% to a quarterly average of $1,980 an ounce in the first quarter of 2023. This was just 1% off the record high charted in Q3 2020.
The beginning of a financial crisis and the ensuing bank bailout in late March give gold a final push, but gold was generally supported throughout the quarter by lower yields and a weakening US dollar.
In fact, gold performed well in the first quarter in all major currencies.
As the World Gold Council noted, gold closed 2022 in a resilient fashion, buttressed by central banks and retail investors as even as interest rates and the US dollar soared. Gold demand in 2022 hit an 11-year high. The first two months of 2023 started in a similar vein.
For some, gold’s ‘mere’ resilience in a challenging 2022 was disappointing, but gold held up because it has diverse sources of demand and 2022 was not a crisis year for growth assets.”
The WGC noted that while bonds got clobbered last year, it was barely a bear year for equities, and 2022 experienced neither recessions, defaults, bankruptcies nor large-scale layoffs.
But in March, we began to see the cracks in the economy became much more obvious.
It’s not surprising that after such an unprecedented pace of hiking, something had to give. The problem with banks is that they are inherently part of a fragile system. Fractional banking works well until it doesn’t.”
The World Gold Council noted that while the bailout seems to have stabilized the banking system for now the crisis isn’t necessarily over. This dovetails with comments made by JPMorgan CEO Jamie Dimon who said the banking crisis is not over. The WGC also pointed out fragility in the commercial real estate market.
A bit of complacency, faith in central bankers and equity market resilience makes for an uneasy cocktail in the event of a full-blown crisis. But since such crises are almost impossible to time, a strategic holding to gold makes sense. Gold has historically responded well in such scenarios, as it did recently during the Ukraine invasion in February last year and the Silicon Valley Bank collapse in March.”
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