Major cracks in financial markets!

History often rhymes

We are currently witnessing another period of stagflation. Already before the COVID crisis, we saw strong indicators, which pointed to a decrease in globalization and a slowing economy. The crisis certainly put additional pressure on this trend and amplified this trend. Central banks certainly also did their part, and the war in Europa is also not helping this development.

The Federal Reserve and its strategy

Since the current inflation is driven to a large extent by supply issues, the rate hikes of the Federal Reserve have only been moderately successful. The tactic is to use rate hikes to create a mild recession, which will then bring down inflation. This plan would never be approved by any military strategist and so far, we are beginning to see major cracks form in the financial sector, which will only get worse if the current policy continues. The strong US-Dollar is also playing a big role in this development, as it puts a lot of pressure on governments and financial institutions outside the USA.

The status quo on gold

The strong US-Dollar certainly stole the show from gold this year. In other currencies such as the Euro or the Japanese Yen, it is doing its job quite well. Gold would certainly react positively if the Federal Reserve would turn around on its rate hike policy. While the gold mining industry has experienced even greater draw-downs, the overall health of the companies is good and great projects are still being developed and executed. While the current difficulties with energy prices have certainly left their mark, they have not caused a catastrophe.

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