The banking problems started by Silicon Valley Bank are far from over. Depositors are still fleeing smaller banks, figuring they might be facing the same problems as the banks that failed. The ongoing crisis supports gold, posits Sean Brodrick, editor at Weiss Ratings Daily.
One reason is because gold is a safe haven. But it’s also due to another reason … it’s now harder for the Federal Reserve to raise rates!
In a week, there has been a huge shift in Wall Street’s bets on the Fed raising rates. Goldman Sachs (GS) expects there to be no rate hike at all. Global financial services group Nomura Holdings (NMR) boldly expects the Fed to CUT at its March 21-22 meeting — something that did not seem possible last week.
Even if the Fed hikes rates at this meeting, it’s losing incentive to keep hiking rates at future meetings. That‘s because Fed rate hikes are part of what fueled the banking crisis in the first place.
Currently, the Fed’s benchmark is in a range of 4.5% to 4.75%, up from near zero a year ago. That is a huge move in a relatively short amount of time.
This hurt banks in two ways: It hammered the value of longer-dated Treasurys held by the banks, and it raised the borrowing costs of bank customers, including no-earnings tech companies that need cheap money to survive.
So, now we will have fewer rate hikes than previously expected. And since the market is an expectations game, this is chopping away at support for the U.S. dollar.
What is priced in dollars? Gold and silver. As the dollar slides lower, precious metals should find the next leg of their bull market.
The easiest path is higher, with a target of $2,931 sometime in the next year. This banking crisis is just adding fuel to the move higher in gold that was already taking place.
While you can profit from buying something like the SPDR Gold Shares (GLD), it’s the gold miners that are really outperforming. That is because miners are leveraged to the price of gold. As its price climbs, their profit margins get bigger and bigger. An attractive ETF in this scenario is the VanEck Gold Miners ETF (GDX).
So, while America works through this banking crisis, don’t hide under your desk. There are great investments out there for those brave enough to seize the day. Gold is a shining example, and the miners will shine even more so.
Recommended Action: Buy GDX.
