The price of gold has set record highs several times this year. In August, another barrier was broken when it passed $2,500 per ounce. The reason for this surge was the annual Jackson Hole symposium, one of the most important meetings of central bankers.
What happened at Jackson Hole?
Chairman of the Federal Reserve, Jerome Powell, played a critical role. In his speech, he confirmed what everyone had been expecting but had not yet been officially confirmed. The risk of inflation in the US has reduced. However, the threat to employment has increased. Thus, it is time for a monetary policy adjustment.
Following Powell’s speech, the dollar noticeably weakened, and the price of gold rose, breaking the psychological barrier of 2,500 USD. In the following weeks, despite consolidation, it remained above this level for most of the time.
The direction is clear – there will be cuts, the first one in mid-September. However, new questions arise: how deep will the September cut be (25 or 50 basis points)? How many times will the Fed lower interest rates in this cycle? How deep will the interest rates be cut in this cycle?
We don’t yet know the answers to most of these questions, as they depend on macroeconomic indicators and developments. However, it is very likely that we are not talking about a single cut, but a cycle of cuts. It is also certain that other central banks will follow in the footsteps of the U.S. Fed.
Crash in Tokyo
Another significant event in August was the panic in Tokyo. On Monday, August 5, the Nikkei225 fell by 12.4%, recording one of the worst sessions in its history. This event was also preceded by declines on Friday (5.8%) and Thursday (2.5%). Significant indices in Korea, Taiwan, and Singapore also fell.
What happened? The main cause of the panic was a report on the U.S. job market which contained fairly pessimistic data. Historically, this has been a reliable precursor of a recession in the U.S. economy. Goldman Sachs increased the risk of a recession from 15 to 25%, and JP Morgan even to 50%.
The connection between concerns about the condition of the U.S. economy and the Japanese stock market directly results from the interest rates of the Bank of Japan. In March of this year, the Bank of Japan raised interest rates by 0.1%, and in July by 0.25%. These were the first raises since 2007.
Raising interest rates by the BoJ neutralized the profitability of this practice. And when concerns about the state of the U.S. economy arose, so did panic. On Tuesday, Nikkei recouped some of its losses, although it failed to reach the level from before the crash by the end of August.
Buffett is getting rid of shares
Alongside the crash in Tokyo, the media began paying closer attention to Warren Buffett’s actions. At the beginning of the year, he conducted several major sales of shares, including those of Apple, and now of Bank of America.
Buffett’s Berkshire Hathaway fund has amassed a giant amount of cash. It also became the first U.S. company aside from the technology sector to achieve a market capitalization of 1 trillion dollars.
Why is Buffett selling shares? Does “The Oracle of Omaha” know something we don’t? Theories abound on this topic. However, the moves can partially be explained while avoiding apocalyptic visions. Bloomberg Intelligence analysts believe that – as far as Apple is concerned – tax optimization could be the reason.
Regarding the Bank of America, there has been a lot of speculation that Buffett fears the condition of the banking sector. But it should be noted that even after selling 150.1 million shares of the bank for a total of 6.2 billion USD, shares of BoA still constitute 11.4% of Berkshire Hathaway’s portfolio, and Buffett’s fund remains the largest shareholder.
The fact that Buffett recently celebrated his 94th birthday should not be overlooked. Maybe because of this, he has started to think about succession. What is really the case? Only time will tell.
Will the NBP follow the Fed?
The budgetary bill for 2025 has been adopted and has sparked considerable controversy from the beginning. Primarily, the record high budget deficit, which is set to be 289 billion zloty. And this is at a time when the European Commission has launched an excessive deficit procedure against Poland.
The government decided to uphold the Family 800+ and Good Start programs, as well as the payment of 13th and 14th pensions. Record high funds are also planned for defense – 186.6 billion zloty, which is 28.6 billion more than last year, representing 4.7% of GDP.
No wonder that during a press conference, Prime Minister Donald Tusk hinted that current interest rates are too high and are “hindering economic development”. If the Fed, and other central banks following in its wake, start lowering interest rates, Poland will feel it in terms of export, given its present interest rates.
The problem is that according to a rapid reading of GUS, inflation in August was 4.3% compared to 4.2% in July. We are thus in an unfavorable trend that does not favor lowering interest rates. Nevertheless, taking into account what happened in Jackson Hole, the Monetary Policy Council may decide to reduce interest rates sooner than previously signaled, assuming that the current high inflation is purely the result of the end of the shields.
Michał Tekliński – Gold market expert Goldsaver.pl, Goldenmark Group
Source: https://managerplus.pl/zloto-powyzej-2-500-usd-po-jackson-hole-35129
