Currently, many market participants have begun to sell US currency and invest in “risk assets” – stocks, raw materials and emerging markets due to the suspension in raising rates by the US Federal Reserve. However, this trend is fading away. Last week, the US dollar struck many-month highs against most world currencies. At the same time, the dollar stabilized against the backdrop of a stronger and gold prices began to rise.
Last Friday, April 26, Washington surprised experts with strong data on GDP growth. In the first quarter of 2019, the figure unexpectedly increased by 3.2% year-on-year. The tax cut initiated by the US president played a key role in stimulating economic activity in the country. Against the background of general political and economic instability in Europe, as well as a possible liquidity crisis, big business began to flow into the US dollar and US markets, analysts said. On top of that, a Fed rate of 2.5% makes American securities more profitable than European ones. However, further growth of the US currency may cause a chain reaction of sales of “risk assets” that were bought with borrowed dollars, experts warned. Currently, risk assets are considered to be raw materials and debt securities of developing countries, such as Turkey. Here, the debt crisis is raging, turned into a currency crisis, during which the devaluation of the lira to the US dollar has reached an impressive 40%. Another category of risky assets includes the Russian ruble and federal loan bonds (OFZ).
Experts draw attention to the gigantic size of world debt, reaching $250 trillion and exceeded 300% of world GDP. All over the world, a high debt load of the population was recorded. In China, household debt over the past 10 years has increased 4 times. The debt burden of the American corporate sector has almost doubled. In 2021, the maturity of corporate bonds in the amount of $2 trillion will come, which may cause a serious liquidity crisis and an uncontrolled increase in interest rates. According to experts, this can provoke a significant increase in the cost of the yellow metal. Experts are confident that in the case of the implementation of such a scenario, the price of gold will react the same as in the period from 2007 to 2011 when the precious metal prices rose from $650 to $1900 for 1 troy ounce. According to specialists, the price of gold has already noted the local minimum and will retain its position until August of this year, when the season of high demand for the yellow metal starts in Asia. Until that time, experts are counting on continued consolidation in the range of $1,250 to $1,350 for 1 ounce of precious metal.
Taking into account the above factors, analysts expect a new wave of “flight from risk” against the background of sales in stock markets, which can lead to a significant strengthening of the US dollar to the entire spectrum of currencies. However, this time the strengthening of the American currency will not entail a fall in the value of gold since the liquidity crisis creates an expectation of a new issue.