Gold Rush During Bank Runs: The Case of Silicon Valley Bank
Gold’s status as a safe haven investment during market crises and turbulences is well documented. The current banking crisis, which has so far led to the collapse of four banking entities (Credit Suisse, Silicon Valley Bank, Signature Bank, and First Republic Bank), has turned out to be no exception. Even before the failed banks stocks started to crash, social media whipped up massive waves of panic with regard to the banks. This in turn caused bank runs of a scale not seen in recent years. During the massive bank runs, investors shifted to gold, sending the precious metal’s price sharply higher.
Gold During the Run on Silicon Valley Bank
The case of Silicon Valley Bank (SIVB) stands out from the rest by the sheer degree to which social media drove the run on the bank. SIVB had a high proportion of startups among its customer base. Many of the founders and senior executives of these startups are active on social media, commenting on a range of business topics. Some of them are influencers with large follower bases.
When initial reports of problems for the bank emerged, these influencers and commenters took up the topic of SIVB’s troubles and helped spread it virally. The social media driven panic led to a run on the bank that started on 8 March. The run devastated SIVB, and on 10 May, just two days later, the bank collapsed.
The market reacted to the bank run with a strong rush towards gold immediately, right on 8 March – the first day of the run. On that day, gold started its steepest short-term rise since mid-2020.
The image below shows the price of gold for the last 6 months. The sharp spike on 8 March stands out quite prominently.
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Not since the COVID-19 caused market panic of 2020 has gold seen such a quick rush to it. When bank runs are in progress, watch out for opportunities with gold. One important note, though – you will have to be quick as gold loses no time to react to such turbulent events.
Many would argue that SIVB, or some of the other banks that have collapsed, might have avoided their grim fate if social media hadn’t acted as the catalyst for the bank run. Tracking social media sentiment for banking stocks via PUMP, we tend to agree as we have seen incredible, panic-scale sentiment spikes even before SIVB or the other failed banks started to lose ground on the stock exchange.