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Gold and Bitcoin are breaking all-time records. Why?

INVESTINGGold and Bitcoin are breaking all-time records. Why?

The price of the royal precious metal last week reached almost 2,200 dollars per ounce, setting a new record. Bitcoin also reached its all-time high (ATH). – The fundamentals for the growth of both assets are distinctly different – emphasizes the gold market expert.

Last week brought a new record when it comes to the price of an ounce of gold, expressed in U.S. dollar. The royal metal ended the week at around USD 2,180/oz, beating the previous ATH set in December 2023. It seems that gold has not yet had its last word and is likely to strengthen further.

Interestingly, bitcoin also achieved its record price. Such situations are unusual because the royal precious metal, considered a safe haven, does not behave exactly the same as the most popular cryptocurrency. However, the foundations and premises that led to the record highs of both assets are distinctly different – comments Michał Tekliński, gold market expert,

Smart money in the game

The expert points out that the rise in bitcoin prices is driven by the upcoming easing of economic policy and improving economic conditions. Tekliński explains that this is the moment when many people engage the so-called greed mode. They try to find those assets that offer a very high premium, but at the same time are very risky. What is happening with gold, on the other hand, is probably the effect of so-called smart money.

This means that those who on the one hand notice a theoretical improvement in the situation, but on the other – see how many different kinds of surprises may await us in the near future. And they conclude that different kinds of bubbles may burst soon. And then gold will reign again. That’s why they are buying it now and thus influencing the price of the metal – explains Michał Tekliński.

As the expert adds, this is causing the metal’s quotations to rise at the moment, with central banks playing a leading role as they continue to buy gold heavily.

Another banking crisis on the horizon?

Last week, the International Monetary Fund also published a report warning of a banking crisis that could soon arrive.

The IMF summarizes events of the last year and draws attention to the fact that in March last year we were dealing with a banking crisis, not only in the United States, although the bankruptcy of Silicon Valley Bank started, and then First Republic Bank also went bankrupt. Shortly thereafter, problems arose at Credit Suisse, which had to be taken over by another Swiss bank – recalls Michał Tekliński.

This led to a great deal of turmoil in the interbank markets and greatly alarmed many people in terms of the possibility of another economic crisis. In 2023, we had the largest banking crisis since 2008, when the collapse of Lehman Brothers led to a massive downturn in global financial markets.

The International Monetary Fund admits that such situations may repeat, as many smaller banks in the United States still have very strong exposure to commercial real estate. And this is a rather risky asset. Therefore, as in the case of Silicon Valley Bank, such exposure can lead to the collapse of more banks – explains the expert.

The International Monetary Fund warns against this situation.

However, the IMF appreciates and praises the reaction of international institutions in this report, while at the same time saying that it was carried out with a delay. Therefore, one must be vigilant and carefully observe what will be happening in the American economy. One bank is usually in a network with others, so the collapse of even a small entity can cause great turbulence in the entire sector – adds Tekliński.

The FED is not raising rates for now

Until recently, many indications suggested that interest rates would be cut in the United States in March. However, in the face of incoming new data on the U.S. economy and the situation in the world, markets have been revising their expectations. Currently, there is essentially no question that there will be no rate cut at the meeting scheduled for March 20.

However, Federal Reserve Chairman Jerome Powell says that the situation is generally improving and that a very restrictive policy cannot be pursued all the time. He sends signals that the market interprets as an interest rate cut that will finally take place in June. This should affect the value of the dollar and the price of gold, as these two assets are inversely correlated with each other – Explains Michał Tekliński.

If the value of the dollar falls, gold will get an additional premium and its price will probably start to rise. At the moment, according to the FedWatch Tool, more than half of the analysts and traders expect that the American central bank will decide to cut interest rates in June. The probability of a cut at the May meeting is estimated at less than 20 percent.

Inflation in Poland has reached its target, but …

On Monday, March 11, the National Bank of Poland presented the latest data on inflation in our country. According to NBP estimates, we have reached a level consistent with the inflation target. In February, inflation fell to this level, and in March it may be close to 2.5 percent. However, the expert points out that this is probably just a temporary halt in price increases, not a permanent trend.

In the Polish economy, there are many factors that may cause inflation to be higher again in the near future. VAT may return to food, energy prices may be “liberated” and will more accurately reflect what the market dictates. And this is likely to result in inflation jumping up again in the second half of the year. This has to be taken into account – predicts Michał Tekliński.

According to the latest NBP projection, if the government completely abandons anti-inflation shields (on food, electricity, and gas), although inflation in Poland will be 3.4% in the second quarter, it will be 8% in the third quarter, and 8.4% in the fourth. Conversely, in the unlikely scenario of keeping existing shields, inflation will be 2.5% in the second quarter, 3% in the third, and 3.4% in the fourth.

Therefore, the Monetary Policy Council left interest rates unchanged at the March meeting, which of course did not please borrowers. What’s more, the MPC sends signals that this year there is no point in expecting a rate cut. Therefore, lower loan rates are likely to wait until next year – adds the expert.

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