Fed chief Jerome Powell did not rule out further interest rate hikes

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(PHOTO - opojisteni.cz)

As we enter the 43rd week of 2023, it is once again time for the Golden News. The current price of gold is $1,981 (Saturday, October 21, 2023) per troy ounce and the trend of gold over the last 5 days has been up by 2.86 %, the price of silver is $23,374 (Saturday, October 21, 2023) per troy ounce and silver has seen an increase of 3.15 % over the last 5 days. In CZK terms, gold rose, up 1.79 % to CZK 46,074, in EUR terms it rose, up 2.06 % to EUR 1,870, silver rose 2.08 % to CZK 543.50 and in EUR terms it rose 2.36 % to EUR 22,068 per ounce.

US Federal Reserve (Fed) chief Jerome Powell did not rule out further interest rate hikes. Speaking at the Economic Club of New York, he pointed to the strength of the US economy and the persistent tight labour market conditions. Inflation remains too high, according to Powell. The central bank is trying to bring inflation to its two per cent target by tightening monetary policy. Further potential interest rate hikes will further push down the price of US Treasuries, and this will further pressure US banks and make them a problem, as we reported in the last Gold News see below. Any problems for US banks will increase market turmoil and weaken the USD and these phenomena will in turn push the gold price up. So let's keep a close eye on what is happening in the US economy, how US bonds and banks are doing. Losses on longer maturity US Treasuries are beginning to rival some of the most famous market crashes in US history.

Treasuries with maturities of 10 years or more have fallen 46 % since the peak in March 2020, according to Bloomberg data. That's only slightly less than the 49% drop in US stocks due to the bursting of the so-called dotcom bubble at the turn of the century. The fall in 30-year bonds was even worse at 53 %, approaching the 57% fall in stocks during the deep financial crisis. The magnitude of the losses serves as a cautionary reminder of the risk inherent in investing in very long-dated bonds, where prices are most sensitive to changes in interest rates. This was previously part of the appeal of these securities due to the Fed's lowering of borrowing costs to near zero for most of the past decade. The impact on U.S. banks, which are far from recovered from the banking crisis of this spring, could be significant. Given how interconnected the financial and banking worlds are, it is clear that any problems for US banks will mean a spillover to Europe. Let us therefore be very attentive.

Robert Vlasek

(gnews.cz/JAV)