Who would have thought that at the time of the coronavirus pandemic, some of the world’s indexes would reach new heights. It feels like a kind of bubble is being inflated, which could burst at any moment.
Leil Brainard, a member of the US Federal Reserve Board of Governors, gave some details on the future economic support system. In particular, her speech included expressions such as “pursuit of profitability” and “other bubbles”. However, “monetary policy is not about blowing out these bubbles”. This is an interesting statement which, given the current situation, could have serious consequences for financial markets.
From this conversation it became clear that the Fed’s task will be to stimulate or slow down the overall economic environment, and how this will happen is not so important. Of course, no one will allow for sharp imbalances, but they are also not going to impose serious restrictions with the slightest deviation.
After such statements, it seems that there is no end to the decline of the dollar, and the Euro should be flying up above 1.20 very soon. But ECB colleagues are not sleeping and are also watching the situation. Even now the ECB states that the EUR/USD rate is very important for the current monetary policy of the ECB. Given these statements, it is clear that the central bank is not very favourable to the exchange rate above 1.20 and will not let the rate go too high, but it is not going to weaken much either. In the current situation, 1.1850-1.1750 looks good for buying.
Gold has been trading in some sidewalls lately, but this is good in some ways because it allows investors to take a breath and gain strength for a new breakthrough.
There is a correlation between inflation in the US and the value of gold. So there are calculations that corrected the price of gold adjusted for inflation in the USA until 1980. At that time, inflation was around 8% per year, and at those prices in 1980, adjusted for an ounce of gold, it was worth as much as $18,000! That’s just an incredible value.
No one is saying yet that gold will go to this level. But it is worth thinking that the USA printed more money in the last June than in the last 200 years. In total, 10 trillion dollars have been sent to the economy, which cannot but affect gold and its growth.
What awaits us today?
03.45 Composite business activity index (PMI) in China for August
10.30 UK Composite Business Activity Index for August
16.30 Address by Andrew Bailey, Governor of the Bank of England
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