The Federal Reserve's roadmap to make money more expensive activates gold as a refuge value
An intense effervescence is coming in the capital markets. Judging by the analyzes from the machine room of banks and investment managers, months with strong volatility are approaching and the trajectory of the values will be one of the unknowns to solve. But there is one certainty: gold will once again be the refuge value par excellence. In fact, at the height of the inauguration of the super cycle of raw materials that the market consensus warns about, an ounce of gold has exceeded 1,800 dollars, a barrier to which the average of the last two years had approached.
The ounce of the precious metal was quoted at 1,821.8 dollars on February 7, with a clear reading from the research services of investment firms: the central banks will determine, more than the epidemic, the behavior of the stock markets, more in Specifically, and above any other, the US Federal Reserve, which market strategists have under maximum surveillance. In fact, the first jump of the year above 1,800 dollars is related to an official reading by the Fed, in which two of the members of its Open Markets Committee - Esther George, from the Kansas Federal Reserve and Mary Daly , of San Francisco- played down with any aggressive move to raise rates in the US. In the opinion of these economists, the American economy, which is going from strength to strength with year-on-year growth of 6% in the last quarter of 2021, does not need “unnecessary disruptions”, but rather “adequate preparation” for more expensive money.
George and Daly's slogan weakened the value of the dollar. The feeling that the US economy runs without brakes and that it needs an imminent restrictive touch in rates still close to zero has pushed down the value of the greenbackwhich has prompted gold, in turn, to seek "permanently an anchor in the foreign exchange markets on which to operate," says Daniel Briesemann, an analyst at Commerzbank AG to Bloomberg to explain the dollar-ounce relationship since the beginning of 2022 and the jump to the price of $1,800.
However, beyond the behavior of the US currency, what is gripping gold and the rest of raw materials is the high tension that has been installed in the markets. "Something smells like a strong correction", is heard from Wall Street. Some investment gurus have already released their predictions and they are not at all rosy. The veteran Jeremy Grantham - historical reference and chief long-term investment strategist at GMO - speaks openly of a super bubble that will explode with the first bullish touch of the Fed. “A crash epic” -of greater dimension than in the dotcom crisis between 2000 and 2002- in which Morgan Stanley also affects in its notes to clients: they begin to warn of a tumultuous year in the capital markets. Goldman Sachs warns in the same vein, with a clear trigger: the first of the four increases in the Fed's money for 2022.
Grantham speaks of expanding bubbles in the US housing market and in commodities. He adds that the inflationary bill will reduce the real purchasing power of citizens, especially if raw materials continue to rise in value and "grip" the American and global economy, which "direct towards a minefield." GMO's chief long-term investment strategist criticizes the Fed and other regulators for not emphasizing the "excessive risks" of overvalued assets. Faced with this situation, he warns that it is necessary to "prepare" for the outbreak, "placing" part of the money and resources in quickly available funds. It is at this point that gold appears as a historic refuge value.
The fund manager Federated Hermes also sees in the changes in the central banks' discourse the reason for a wave of "sales in all risk asset classes in Europe". In fact, Vincent Benguigui, one of her analysts, considers that the unexpected influence gained by the hawks both the ECB and the Bank of England "has triggered the alarms" and gold, the best and first thermometer of these corrections, has manifested itself again, he explains.
As was the case in 2019, when the tariff wars unleashed since the Trump Administration had reduced the pace of the global economy to almost anemia, the precious metal jumped to 1,400 dollars per ounce. Then Vanguard Markets analysts warned that "punishment episodes" were coming and the hedge funds -hedge funds- took positions in favor of gold in their short-term speculative movements.
Jeff Currie, head of raw materials at Goldman Sachs, is among those who believe that a bullish phase for gold is brewing, although he adds that the increase in the price of the metal is also driven by geostrategic conflicts such as the one in Ukraine. Another element to take into account is the high voltage that emanates from the prices of cryptocurrencies. In Fidelity they summarize it eloquently: only from the economic-financial point of view, the rate hikes in the US will lead to a strong dollar, while crypto assets demand a diversification of investments towards solid and reliable positions. So “everything points to gold”. In their funds they leave the golden option to configure their portfolios due to their "lesser exposure".
Especially if, as happened in the recent past, central banks such as China or Russia opt to acquire large stockpiles of tons of gold. In 2018, the Russian monetary authority seized 274 tons and another 78 in the first five months of 2019, increasing the proportion of gold in its central bank's reserves by 3.7%. This trend has become general among the regulatory bodies of the main emerging markets - subjected to the most recent currency dance - since the White House unleashed its protectionist policies and trade battles. In total, the precious metal hoarded by central banks around the world in 2018 -the last gesture of its capacity as a haven investment without a health alarm- soared to 651.5 tons, 74% more than in 2017.
The gold rush can also raise your temperature for money interest. Thus declared China with its commitment to diversify the foreign exchange reserves of its central bank with the purchase of the gold metal. The Asian country intends to reduce dependence on the American greenback, with which gold and gas futures contracts are formalized and is the predominant one in the international payment system and in the global financial architecture.
