Gold prices are testing a new low. Now it is necessary to closely monitor the reaction of financial markets to the Fed's statement on monetary policy. On Wednesday, September 22, representatives of the US central bank announced that in November a plan will be announced to reduce monthly bond purchases. The implementation of this plan is scheduled for the second decade of December. According to forecasts, the US central bank may raise interest rates in December 2022. By the end of 2023, they can grow by 1%.
George Milling-Stanley, chief gold market analyst at State Street Global Advisors (USA), said he considers the recent change in gold prices a logical and positive phenomenon. In June, when the Fed first talked about raising rates, yellow metal quotes fell $100. Since the Fed's recent monetary policy meeting, gold prices have declined, but are around $1,750 an ounce.
One of the main factors acting against gold is the unprecedented rally of stock markets for most of 2020-2021. The S&P 500 and Dow Jones Industrial Average indices reach record highs almost daily. However, it should be remembered that growth in stock markets is always associated with the existence of large risks in the world economy.
Some analysts believe that the potential default of the famous Chinese developer Evergrande Group could provoke a global liquidity crisis. The company's debt is $300 billion. In the next 3 months, the company must pay interest payments in the amount of almost $1 billion. Currently, the company has a 30-day grace period.
At the same time, the US government is running out of money to fulfill its own debt obligations. Janet Yellen, the US Treasury Secretary, appealed to Congress to raise the "debt ceiling." According to her estimates, in October the government will run out of money.
Milling-Stanley advises investors to once again assess the risks from investing in stocks, because, as past experience shows, one of the causes of financial crises was an underestimation of such risks. Investors should not focus only on monetary policy and interest rates. According to the expert, it is necessary right now to buy gold in order to increase profitability and reduce risks from investing in stocks.