Energy prices, euro weakness & the gold price

Energy Prices, Euro Weakness & the Price of Gold © Kwon Junho / Unsplash

What was interpreted by economists in 2021 as a minor outlier and a delayed reaction to the corona lockdowns now developed into the highest inflation rate in decades in the course of 2022. In Austria, we are already scraping 9% inflation in June.

This extreme inflation can be attributed primarily to three factors: The expansionary monetary policy of recent years, the still-disrupted supply chains and the energy crisis in the wake of the Ukraine war.

But what happens next? What is in store for us? And above all, what impact will these developments have on the gold price?

Gas supply freeze fuels recession fears

Image credit: Unsplash

The biggest driver of inflation at the moment is certainly the enormous increase in energy prices. Sanctions against Russia and the fact that Putin is using gas supplies to Europe as leverage are causing prices to skyrocket.

If Putin cuts off the gas to Europe completely, things will get tight. People are already discussing how energy should be rationed and distributed in winter. Will private households freeze or industrial companies have to stop working?

It seems utopian to be able to fill the gas storage facilities until winter, renewables cannot be expanded so quickly even with the best will in the world, and even reactivating old coal and nuclear power plants may be more difficult than one might think. A recession in Europe seems inevitable in the event of a supply freeze.

Inflation forces central banks to act

ECB Euro
Image credit: Unsplash

The high inflation rates are also forcing the central banks to act. In the USA, the Fed announced a turnaround in interest rates at the beginning of this year. ECB chief Christine Lagarde, on the other hand, delayed for a long time the decision to finally do something about the galloping inflation in the euro zone.

However, because the stability of the currency is the primary objective of the "guardians of the currency," the ECB is now also raising the key interest rate.

Some now fear that higher key interest rates will hamper economic development, and that interest rate hikes will likewise further fuel the likelihood of a recession.

Is the euro wobbling once again?

However, the interest rate hikes are causing yet another problem. As soon as it became clear that the ECB would also raise its key interest rate, the bond yields of southern euro countries rose rapidly. For Italy in particular, but also for Greece, Spain, Portugal and, not least, France, this will make borrowing significantly more expensive. Perhaps too expensive? And we are already facing the threat of a new sovereign debt crisis.

The euro is already under pressure. In mid-July 2022 we will have reached euro-dollar parity. And in the foreseeable future we are likely to get only 95 US cents for one euro.

What does 2022 hold for gold?

Since gold is traded worldwide in U.S. dollars, the weak euro is currently making gold more expensive for us in Europe. If the euro comes under further pressure, this could also increase somewhat.

Gold does not earn interest. But it does retain its value. In times of high inflation, it therefore makes sense to invest part of your assets in gold and other precious metals.

Currently, the price of gold is relatively stable, and in recent weeks even pointed downwards. The reason: Since the safe U.S. government bonds bring interest again due to the interest rate increases of the Fed, they seem to be more attractive for investors than gold at the moment.

A gas supply freeze with the shutdown of large parts of the economy would not only plunge Europe into recession, but would probably fuel inflation even further. Even if everything were to go better than feared, a sudden drop in inflation rates and a positive economic outlook are certainly not in the cards.

While there is no end in sight to the bear market on the stock exchanges, we at Gold&Co assume that the threat of stagflation will awaken investors' longing for a "safe haven" and thus fuel the gold price.

Also the two gold experts Ronald Stoeffele and Mark Valek discuss the current developments already in your "In Gold We Trust" Report 2022 of this year. In their gold price forecast, the two expect a price target of 2,187 USD per troy ounce for the year 2022, while they see gold at 4,800 dollars / ounce in the long term for the year 2030.

Gold as collateral

With an investment in gold you are always on the safe side! Gold is a permanent value due to its limited availability. This has been the case for centuries and will remain so for a long time. You can rely on that!

You want to buy or sell gold?

Come now for a personal, non-binding and serious consultation in one of our branches in Vienna or visit our online store.
Our branches
To the store

You might also be interested in

News, background information and updates on the topics of gold & silver.

other contributions