Gold and Currencies Agree on Terms
In recent times, the value of the US dollar has been on a downward spiral against gold, with the dollar losing around 90 percent of its purchasing power twice in history. This trend has even extended to a total value loss of 99 percent since the 1960s.
The past few months have seen a significant increase in gold prices, with a nearly 130 percent surge since the low in late October 2022. This sharp increase, according to analysts from Bravos Research, is a cause for concern and signals a creeping revaluation of the US dollar.
Bravos Research has identified three factors contributing to this growing tension in financial markets and the diminishing power of the US dollar. Firstly, escalating geopolitical conflicts and protectionist tendencies have led to an increase in gold reserves by many countries. Secondly, the expansive fiscal policy of the USA, marked by massive budget deficits and interest rate cuts, is pushing the dollar down. Lastly, despite a robust employment rate, consumer sentiment remains weak due to high living costs, unaffordable housing, and growing inequality.
The Momentum Indicator RSI shows an overbought market condition, which could be an early warning signal for an impending pullback. However, gold's continued rise, even with a low unemployment rate of around 4 percent, deviates from the usual pattern.
The chart from TradingView shows the development of gold prices since the low in late October 2022, painting a clear picture of the metals relentless ascent.
Bravos Research views gold not only as a crisis shield but also as a strategic beneficiary of a policy that willingly accepts the loss of purchasing power of the dollar. Historically, gold prices rise during phases when the US economy cools and unemployment increases.
The research firm warns that a future economic downturn could widen the gap between stock markets and the gold price, similar to before the financial crisis in 2008. If the US economy were to slip into a recession, the government and central bank would likely have to intervene more aggressively, with consequences for currencies and capital markets worldwide.
The possible correction may have begun with yesterday's pullback following the Fed's "cautious" interest rate cut. Yet, gold prices are reaching new record highs, indicating deep-seated tensions in the global financial system. Bravos Research urges investors to stay vigilant and closely monitor the developments in the financial markets.
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