Gold and Silver Prices Rise Amid Escalating Turmoil in EU Banks

Banks around the globe continue falling one by one, allowing gold and silver prices to rise as investors seek safe ways to protect their assets. What began as a seemingly siloed event in the United States with the collapse of SVB Financial has already spread to Europe, causing silver and gold prices to swell on March 24, with silver reaching a six-week high. As each week of March brought further uncertainty on the banking front on both U.S. and European grounds, silver and gold performance levels only strengthened.

On March 15, Credit Suisse, one of Europe’s largest banking institutions, lost 30% of its shares after one of its largest shareholders pulled out all investments, causing the bank to hit an all time low. The financial institution lost $8 billion last year alone, its largest losses since 2008, the same year as the U.S. Great Recession. The enormous crash sent shock waves throughout the entire European banking sector.

To recoup losses, Credit Suisse planned to borrow $53.7 billion in funds from the Swiss National Bank, which sparked the mass withdrawal of shares from investors on March 15, plummeting the bank’s price by 30%. “This additional liquidity would support Credit Suisse’s core businesses and clients as Credit Suisse takes the necessary steps to create a simpler and more focused bank built around client needs,” the bank attempted to explain.

Not only is Credit Suisse one of Europe’s most prominent banks, but it’s also one of the largest in the world, making it one of few that fall into the “global systemically important bank” category. This grouping includes just 30 banks, like JP Morgan Chase, the Bank of China, and Bank of America.

Following the events on March 15, stocks in Asia drastically fell as well, displaying how widespread the effects of this collapse would become. The bank quickly responded with determination and confidence in restoring its operations.

During a joint statement, the Swiss Financial Bank stated that Credit Suisse still met the “strict capital and liquidity requirements” covering the greater financial system. Because of this, they explained that “if necessary, the SNB will provide C.S. with liquidity.”

Unfortunately, the banking fears that began on U.S. grounds only made the situation more explosive. Investors had a greater level of fear after witnessing what went down with SVB Financial.

“Certain banks in the USA do not pose a direct risk of contagion for the Swiss financial markets. There are no indications of a direct risk of contagion for Swiss institutions due to the current turmoil in the U.S. banking market,” Swiss authorities claimed, as an attempt to calm the situation at hand.

While SVB’s failure might not have directly caused Credit Suisse’s, one cannot claim that both events have no relation, especially considering how they occurred within days of each other.

Last year alone, customers took out $133 billion from Credit Suisse, primarily during the fourth quarter, contributing to a net loss of nearly $8 billion. As an attempt to recoup these losses, the institution began a “radical” reconstruction strategy that involved cutting 9,000 jobs last October. Clearly, this strategy did not pan out as we fast forward to the present day.

French and German banks, including BNP Paribas, Commerzbank, Societe Generale, and Deutsche Bank all fell between 8% and 12% following Credit Suisse’s meltdown. “[Credit Suisse] is much more globally interconnected, with multiple subsidiaries outside Switzerland including in the U.S.,” Andrew Kenningham, the chief Europe economist for Capital Economics explains. “Credit Suisse is not just a Swiss problem but a global one.”

As the European and United States banking crises spread worldwide, gold and silver prices gain more momentum. Investors lose their trust in financial institutions as these events continue occurring, so they opt for more secure, tangible, and stable assets that won’t fail because of one CEO’s decisions.

At the beginning of 2023, gold prices were in the lower $1,800 range per ounce, and on April 4, the shiny metal reached $2,038 per ounce. Gold hasn’t breached the $2,000 line since early 2022 when Russia invaded Ukraine, and it’s steadily held this high price range for the last two weeks.

Silver began 2023 in the mid $23-per-ounce range, where it’s been stuck for quite some time. Silver finally breached the $25-per-ounce line in early April. Both metals show continual growth as most other asset classes fail.

Whether or not the banking crisis will ease, continue, or worsen is up for debate but one thing is clear: not all assets fail when banks do. As always, investors should consult their financial advisors before making any portfolio moves.

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