Asian equities fell sharply on Friday, mirroring Wall Street’s retreat, as renewed concerns over the stability of U.S. regional banks rattled global markets. Investors rushed to safety, driving gold to a fresh record high of $4,378 per ounce, while government bond yields extended their decline amid rising bets on further U.S. interest rate cuts.

Stocks across the Asia-Pacific region slumped, with MSCI’s broadest index of Asia-Pacific shares outside Japan dropping 0.9%, erasing early-week gains. Japan’s Nikkei 225 fell 1% as its banking subindex tumbled, while Hong Kong’s Hang Seng and China’s CSI 300 each lost 1.4%. Taiwan’s Taiex shed 0.9% even after chip giant TSMC reported record profits and a bullish forecast on AI investment.

The market turbulence followed a grim session in the U.S. on Thursday. Shares of Zions Bancorporation plunged 13% after the lender revealed a $50 million loss from two California-based loans, while Western Alliance dropped 11% after filing a lawsuit alleging fraud against Cantor Group V, LLC.

“While the recent issues seem isolated, the 2023 regional banking crisis showed how quickly localized problems can spread,” said Tony Sycamore, market analyst at IG. “The system remains vulnerable, and liquidity stress could easily resurface.”

Safe-Haven Surge: Gold and Bonds Rally

The resurgence of banking fears drove a powerful flight to quality. Gold surged to an all-time high of $4,378 before easing slightly as profit-taking set in. The precious metal remains up 7.6% for the week — its biggest weekly gain since early 2020. Silver followed suit, hitting a new record.

In fixed income markets, U.S. Treasuries rallied further. Two-year yields fell to 3.404%, their lowest level in three years, while ten-year yields eased to 3.959%. Traders now expect at least two additional quarter-point rate cuts from the Federal Reserve this year.

“The combination of credit jitters, a weakening dollar, and dovish Fed expectations has created the perfect storm for gold,” noted Rico Luman, senior economist at ING.

Geopolitical and Currency Pressure

The dollar index fell 0.6% for the week to 98.24, its lowest in 10 days. The Japanese yen and Swiss franc — traditional safe havens — each gained around 0.8% for the week.

In Asia, sentiment was also weighed down by rising U.S.-China trade tensions, with Beijing rebuffing Washington’s call to roll back curbs on rare earth exports. “The dispute adds another layer of uncertainty for Asian manufacturers and global supply chains,” said an HSBC strategist.

Meanwhile, Bank of Japan Governor Kazuo Ueda reiterated that policymakers would review economic data carefully before deciding on any interest rate adjustments. In Japan, political developments also drew attention as LDP leader Sanae Takaichi continued efforts to consolidate support ahead of a leadership vote next week.

Global Outlook

European stock futures slipped 0.7%, and FTSE futures dropped 0.9%, signaling a weak open as investors brace for more U.S. regional bank earnings later in the day.

“Market nerves are clearly elevated,” said Priya Misra, head of global rates at TD Securities. “Until the banking sector proves its stability, risk appetite will remain fragile, and safe-haven demand will dominate.”