Discussions about potential interest rate hikes are beginning to emerge in the United States. Markets are reacting immediately: gold is retreating, while the US dollar is regaining strength. In the background, Poland has once again passed a credit rating review, although underlying challenges remain unresolved.
Gold – the Main Casualty of the Gulf Conflict
Earlier this morning, gold was priced at USD 4,200 per ounce. In less than a week, the precious metal dropped from above USD 5,000 to USD 4,200. There are at least several reasons behind this decline.
First, gold had recently experienced significant gains, and many investors were waiting for an opportunity to take profits. Second, expectations regarding US interest rates have shifted. Previously anticipated rate cuts—which had fueled gold’s rally—are now unlikely to materialize this year. On the contrary, based on interest rate futures pricing, the market is beginning to expect increases.
In Poland, an additional context is worth noting. Changes in gold valuation have been considered as part of a proposal to finance Poland’s defense program. However, it is important to clarify that this idea did not involve selling gold, but rather revaluing it. Such a move would generate an accounting profit for the National Bank of Poland, which could then be transferred to the state budget—effectively creating new money. Current declines in gold prices, however, are not driven by announcements of such measures.
The Dollar Regains Strength
The aforementioned shifts in monetary policy expectations have also supported the US dollar. If, until recently, the currency had been priced on the assumption of declining yields, and now is expected to offer higher returns, investor interest naturally increases.
Following Jerome Powell’s recent press conference, it remains somewhat unclear where the narrative of rate hikes originated. However, it appears that investors interpreted his remarks in a way that supports such expectations and are positioning their portfolios accordingly.
Another possible factor is a change in expectations regarding the duration of the conflict in the Persian Gulf. If the current “special operation”—as it has been described by the presidential administration in a controversial rhetorical reference—evolves into what history might recognize as a Third Gulf War, it is unlikely that rate hikes would be limited to just one move, and not only in the United States.
Another Rating Review Without a Downgrade
Friday’s review of Poland’s credit rating by Moody’s resulted in the rating being maintained, but the negative outlook was also upheld. This indicates that analysts see a risk that, if current trends continue, Poland’s creditworthiness could deteriorate over time.
The key concerns relate to the country’s debt level and budget deficit. A potential downgrade would only worsen the situation. A lower rating implies higher borrowing costs, which in turn increases the deficit. Over the longer term, this could also put pressure on the Polish złoty.
This is another reason why discussions around financing large-scale programs such as SAFE are so critical. Monetary expansion through revaluation of gold reserves may not be viewed favorably by rating agencies. Unlike in the case of the United States, such measures are generally perceived negatively in other economies.
Disclaimer:
The information contained in this publication is for informational purposes only. It does not constitute financial or any other type of advice, is of a general nature, and is not directed at any specific recipient. Before using this information for any purpose, independent advice should be sought.
