Gold and Currencies Sealing Agreement
In a strategic move to hedge against geopolitical and monetary risks, three major economies - China, Switzerland, and Russia - are significantly increasing their gold reserves. China is expanding its gold holdings as part of diversifying foreign currency reserves, Switzerland is advised to reduce US Treasury holdings and increase gold reserves, and Russia has been known for substantial gold accumulation to safeguard financial sovereignty.
Yesterday, the Federal Reserve announced a "cautious" interest rate cut, which might have initiated a possible correction in gold prices. However, the US dollar has lost around 90 percent of its purchasing power against gold twice in recent history - in the 1970s and between 1999 and 2011. Gold is seen as a strategic beneficiary of a policy that accepts losses in the purchasing power of the dollar, according to Bravos Research.
The research firm identifies three causes for the current gold price surge: increased geopolitical conflicts and protectionist tendencies leading to an increase in gold reserves by states, expansive fiscal policy of the USA pushing the dollar down, and weak consumer sentiment despite robust employment.
Consumer sentiment remains weak despite robust employment, similar to the low point of the financial crisis, due to high living costs, unaffordable housing, and growing inequality. If the US economy were to slip into a recession, the government and central bank would likely have to intervene more aggressively, with potential consequences for currencies and capital markets worldwide.
Bravos Research warns that a future economic downturn could further widen the gap between the stock markets and the gold price, similar to before the 2008 financial crisis. The Momentum Indicator RSI shows an overbought market for gold, which could be an early warning signal for an impending pullback.
From the perspective of Bravos Research, a creeping dollar devaluation is occurring. The surge in gold prices indicates deep-seated tensions in the global financial system. The gold chart from TradingView shows an increase of nearly 130 percent in gold prices since the low in late October 2022.
Many states are increasing their gold reserves to protect against political interference in currencies or bonds. Historically, gold prices rise when the US economy cools and unemployment increases. Despite a low unemployment rate of around 4 percent, gold is marking new records, deviating from the usual pattern.
Analysts from Bravos Research suggest that the rise in gold signals a creeping revaluation of the US dollar. Since the 1960s, the total loss in value of the US dollar against gold amounts to 99 percent. If the US economy continues on its current path, this trend may continue, posing significant challenges for the global economy.
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