Skip to Content
Back to Blog
Gold Rises as Banks Face Derivative Woes and Recession Fears

Gold Rises as Banks Face Derivative Woes and Recession Fears

June 24, 20241526 view(s)

Gold prices are at $2,336 an ounce this Monday morning, a slight increase from $2,330 an ounce last Monday. This indicates a steady but moderate upward trend over the past week.

 

Regulators Highlight Bank Weaknesses

On Friday, the Federal Deposit Insurance Corporation (FDIC) and Federal Reserve Board, in their joint review of the July 2023 resolution plan submissions of the eight largest and most complex banks, identified a significant weakness. The 'living wills' of Bank of America, Citigroup, Goldman Sachs, and JPMorgan Chase, crucial for unwinding their derivatives in the event of a bank failure, have been found to have a critical fault. This underscores the urgency for effective risk management strategies.

 

A separate report from the Office of the Comptroller of Currency released in March of this year shows the 4th Quarter 2023 derivative holdings of the previously mentioned banks totaling 168.26 trillion dollars. This significant amount of derivative holdings underscores the potential risk exposure of these banks to market fluctuations. It also highlights the crucial role of effective 'living wills' in managing such risks, a factor that cannot be overstated. 

 

 

Concerns Over Economic Instability

Is the “Everything Bubble” a myth? The combined GDP of the entire world was estimated to be 105 trillion dollars last year. Who could bail out the biggest banks when the next liquidity crisis happens? The U.S. GDP in Q1 2024 was only 1.3 trillion. It is estimated the the U.S. has printed 6 trillion in new dollars and borrowed 8 trillion since the Covid-19 crisis. The Federal Reserve Board has given these 4 banks until July 2025 to fix the issues with their “living wills."

If you are losing faith in the security of deposits in a bank, you are not alone. This article is proof that the FDIC that insures deposits is concerned with the lack of an exit strategy regarding the derivatives on several of the biggest banks’ balance sheets. Furthermore, on March 14th this year, the Office of the Comptroller of the Currency fined JPMorgan Chase with a 250-million-dollar civil money penalty related to deficiencies in its trade surveillance program. 

Central Banks worldwide are increasing their gold reserves at a record pace. This trend raises the question: are they anticipating a liquidity crisis? The potential impact of such a crisis on gold reserves is a key point to consider, one that could significantly affect the financial market. In our recent webinar,  "Balance Your Portfolio: Minimize Risk & Maximize Returns," we delved into this topic and more.

 

For more arhives, and to register for upcoming webinars, please visit our Event page

 

Upcoming Economic Indicators

This week, the potential market-moving events include the following:

 

- Consumer Confidence (Tuesday)​

- New Home Sales (Wednesday)​

- Initial Jobless Claims (Thursday)​

- GDP (2nd Revision on Thursday)

- PCE Index (Friday) ​

 

If the GDP's second revision goes even lower than the 1.3 trillion mark reported last month, it will strongly indicate that we are in a recession, a significant event that can impact the financial market. Gold performs well in recessionary times. If the PCE index has not improved from last month's 2.8% PCE, the inflation number will not trend towards the stated 2% target by the Federal Reserve. The Federal Reserve has not changed interest rates in over a year. The status quo has been good for the price of gold.

 

Posting in:
United States Gold BureaubyUnited States Gold Bureau
This site uses cookies to improve your experience. By clicking, you agree to our Privacy Policy.