【Hotspot Tracking】U.S. Banks in Crisis Gold Prices Soar for Consecutive Days

U.S. Banks in Crisis, Risk Aversion Rises
In the early morning of October 17 Beijing time, U.S. regional bank Zions Bancorp disclosed that its subsidiary had set aside a $50 million impairment charge for a loan. Notably, another bank, Western Alliance Bancorp, also stated that it had provided a loan to the same borrower. This suggests that this is not an isolated incident; there is a high probability of a systemic risk breaking out in the U.S. banking and financial sectors, which has significantly boosted market risk aversion and made gold perform exceptionally strongly.

Beyond the financial system, geopolitical tensions have also been at risk of escalating recently. The Chief of Staff of the Houthi armed forces was killed in Israel's recent air strikes on Yemen. Ukrainian President Volodymyr Zelensky visited the United States to discuss the deployment of "Tomahawk" missiles on the Russia-Ukraine battlefield and vowed to fight to the end against Russia. This means that the current risk aversion will continue to provide momentum for the upward movement of gold prices.

Rising Banking Risks, Market Bets on Interest Rate Cuts
Learning from history, we recall the collapse of Silicon Valley Bank in the U.S. in 2023. At that time, the Federal Reserve was nominally in a tightening cycle, but in reality, it allowed regional banks to borrow large sums of money from the Fed using purchase vouchers as collateral, essentially injecting liquidity into the market.

Returning to the present, in the face of the crisis among U.S. regional banks, the Federal Reserve has no other choice but to inject money into the market. Federal Reserve's Christopher Waller advocates for gradual interest rate cuts, believing that the neutral interest rate is 100 to 125 basis points lower than the current rate. Federal Reserve's Loretta Mester argues that the Fed should cut interest rates by 50 basis points and that the Fed should be guided by forecasts. Others such as Thomas Barkin and Neel Kashkari believe that the current U.S. job market has slowed down significantly and inflation is trending downward, so the Federal Reserve can take further accommodative policies.

Of course, if the current crisis among U.S. regional banks exceeds expectations and the U.S. economy faces a greater risk of recession, there is also the possibility that the Federal Reserve will cut interest rates by 100 basis points urgently, drawing lessons from the approach taken during the COVID-19 pandemic.

In any of the above scenarios, it is highly likely that the Federal Reserve will adopt accommodative policies in the future. Before the mid-term elections next year, considering Donald Trump's political demands, it is highly probable that the Federal Reserve will cut interest rates more than expected.

Multiple Bullish Factors Overlap, Gold Prices to Challenge Unprecedented Levels
Chen Yu, a senior analyst at Zhisheng Research (exclusively invited by Plotio)  , believes that in the current gold market, the crisis in the financial system has boosted risk aversion. The credibility of the U.S. dollar has been greatly undermined amid expectations of interest rate cuts and Trump's tariff policies. At the same time, major investment banks and institutions have not stopped increasing their holdings of gold. With multiple positive factors coming one after another, it is highly likely that gold prices will continue their bullish trend. In the short term, gold prices are expected to rise further to challenge $4,500, and in the medium term, the goal of challenging $5,000 may be achieved soon.

[Important Disclaimer:The above content and views are provided by Zhisheng, a third-party cooperative platform, for reference only and do not constitute any investment advice. Investors who trade based on this information shall bear their own risks.]
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