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Cash Flow Boost: Gold and Silver Prices Rise Amid Currency Swaps and Global Banking Crisis

Gold and silver prices surged on Monday, with gold reaching a 12-month high of $2,014.90 and silver hitting a six-week high of $22.50. The sharp increase in demand for these safe-haven metals is a result of the current instability in the global marketplace, particularly due to the ongoing banking crisis in the United States and Europe.

Despite attempts to stabilize the European banking system, including the historic acquisition of Credit Suisse by UBS, investor confidence remains low. Banking stocks and bonds continue to plummet, reflecting the fragility of the situation.

The upcoming Federal Reserve’s FOMC meeting, beginning Tuesday and concluding on Wednesday afternoon, is causing debate in the marketplace regarding whether there will be a 25 basis points increase in the main interest rate or whether the Fed will maintain the status quo. Most market watchers are leaning towards a 0.25% rate increase, following the 0.5% rate hike by the European Central Bank last week.

In response to the risk of a fast-moving loss of confidence in the stability of the financial system, top central banks worldwide have pledged to enhance market liquidity and support other banks. The US Federal Reserve has also offered daily currency swaps to ensure that banks in Canada, Britain, Japan, Switzerland, and the euro zone have sufficient dollars to operate.

These daily swaps will serve as an important liquidity backstop to ease the strains in global funding markets, which will help mitigate the effects of such strains on the supply of credit to households and businesses. Fortunately, the central bank swap lines have shown little sign of crisis so far, with foreign central banks holding outstanding swaps with the Fed for only $472 million as of March 15, versus $446 billion at the beginning of the pandemic and a peak of $583 billion in 2008.

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