Gold prices cross Rs 60,000 amid global banking woes

Extreme risk off sentiments & caution prevails in markets and gold is a major beneficiary of this crisis, said head of commodity research at Kotak Securities

Gold prices soared past Rs 60,000 per 10 grams for the first time on Monday while oil hit its lowest in 15 months and equities markets dipped on concerns that the escalating banking crisis may spark a global recession.

On the Multi Commodity Exchange (MCX) gold futures hit a record high of Rs 60,455 per 10 gram in the intra-day.

Bullion prices have surged in the past week as investors are opting for safe haven amid growing concerns of financial contagion triggered by the collapse of Silicon Valley Bank (SVB) and two other banks in the US and its spread to Europe with a near collapse of Swiss banking giant Credit Suisse.

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“Extreme risk off sentiments and caution prevails in markets and gold is a major beneficiary of this crisis,” said Ravindra Rao, head of commodity research at Kotak Securities.

Rao said the crisis in major banks have raised concerns of a financial contagion and a hard landing in the US, improving the appeal for the yellow metal for its safe haven status.

This happens at a time when US Core CPI is at 5.5 per cent, keeping the US Fed in a tough spot. The US Federal Reserve is expected to continue tightening monetary policy by increasing policy interest rate by 25 basis points this week.

Investors fear that further monetary tightening and a worsening banking crisis would lead to recession in major global economies.

The fear of global recession was reflected in energy markets with oil prices slipping to the lowest level in more than 15 months. Brent crude futures dipped to $70.90 a barrel while the US West Texas Intermediate crude contract declined to $64.86 per barrel, the lowest level since December 2021.

Equities markets dipped. The benchmark Sensex of the BSE crashed by over 900 points in the intra-day. The index closed 361 points down. The Nifty 50 of the NSE closed 112 points down after slumping by 250 points in the intra-day.

“The fear of contagion of the financial crisis has kept investors away from the equity markets as the global market faces numerous hurdles,” said Vinod Nair, head of research at Geojit Financial Services.

Morgan Stanley said in a report that Asia may not be immune to the downward pressure arising from the banking crisis in the US and Europe.

However, banking systems in India and other Asian countries do not face similar challenges as in the US and Europe, it said.

Union Minister of State for Finance Bhagwat K Karad said the Indian banks’ resilience has increased in recent years with the provision coverage ratio of public sector banks (PSBs) rising from 46 per cent in March 2018 to 89.9 per cent in December 2022.

Non-performing assets (NPAs) of PSBs dropped to 5.53 per cent in December 2022 from a peak of 14.6 per cent in March 2018, Karad informed parliament.