Gold hits new records amid falling dollar. What does this mean?

Another record gold price was recorded on Monday, September 8, after disappointing data on the US labor market and rising expectations of an interest rate cut. Since the beginning of the year, gold bars have risen in price by 34%, but last week was a record for the metal: on September 5, its value reached more than $ 3,590 per troy ounce, and on September 8, it already exceeded $ 3,620. Gold is rising against the backdrop of a falling dollar and problems in the American economy. Why the golden rally continues and how it will affect Russia — in the Izvestia article.

Reasons for the rise in gold prices

• Rising gold prices reflect a falling dollar. Since the United States stopped converting its national currency into gold in 1971, the dollar has begun to lose value against the precious metal. Now its value depends on the situation in the United States: the higher the unemployment and inflation, the cheaper the dollar and the more expensive the gold.

• On September 8, the price of the metal exceeded $3,620 per ounce. Along with gold, silver is also growing, which is also considered a safe haven asset during a period of serious turmoil in the global economy.

• The record increase in the price of gold in the markets over the past five weeks has occurred against the background of expectations of an interest rate cut by the Federal Reserve System (FRS), the American equivalent of the Central Bank. Also, data published in the United States showed an increase in unemployment of 1.5%, despite the fact that, according to forecasts, the labor market was expected to fall by no more than 1%. In August, unemployment in the United States was the highest since 2021.

For all that gold: deposits in precious metals will make them more attractive

This will be facilitated by the abolition of VAT on income from these instruments.

• The cooling of the labor market should prompt the Fed to ease monetary policy. A reduction in the rate will accelerate inflation and will stimulate an increase in the value of gold.

• The gold exchange rate has been rising for several years now — the metal has begun to rise in price amid the unstable international situation, conflicts in the Middle East and Ukraine. Government bonds of Western countries have become less attractive to investors due to unprecedented Western sanctions against Russia. Having discovered that Western countries can change the rules and freeze assets on the fly, China and India began to get rid of foreign securities and transfer funds to gold, which does not devalue as national currencies, and which cannot be blocked or taken away.

• The growing national debt and budget deficit of the United States, as well as the uncertainty caused by US President Donald Trump's trade wars with other countries, have undermined the dollar's reputation as a safe haven asset, and gold has become even more attractive to investors. Trump's decision to raise the national debt ceiling also contributed to a decline in the value of the US national currency.

Ruble offset: Russians sharply reduced their purchases of foreign currency

People refuse "toxic money" against the background of favorable offers from banks

• Goldman Sachs analysts believe that the price of gold could rise to $5,000 per ounce if Trump manages to undermine the Fed's independence, and 1% of the private U.S. Treasury bond market flows into gold. An annual survey by the World Gold Council (WGC) found that of the 73 central banks surveyed, 95% will increase their gold reserves over the next 12 months, while almost three quarters expect to reduce their dollar reserves.

Implications for the global economy

• The "flight of assets" from national currencies and government bonds into gold is faced only in the United States. A fall in the value of a bond leads to an increase in its interest rate, otherwise investors are not interested in purchasing such securities. As a result, countries are forced to pay more for public debt servicing. Currently, for the UK, France and Germany, the cost of long-term borrowing has risen to multi-year highs. All three are facing a deep budget crisis that is turning into a political one.

The crisis in France is sweeping away another government. What you need to know

• The European currency lost to gold — according to a report by the European Central Bank, the precious metal has overtaken the euro and become the second largest reserve asset in the world after the dollar. Interest in the metal is growing — the central banks of India, China, Turkey and Poland are increasing their gold reserves.

• The fall in the value of the dollar shows that consumption in the West is in a depressed state. Another evidence of falling demand is the continued low prices for oil and other commodities. The continuation of this trend may lead to a depression in the food markets, which will directly affect the population of European countries.

What does this mean for Russia?

• The central bank has recently been on the path of weakening the ruble, but the fall of the dollar may change this situation. According to experts, the main thing now is to maintain a stable exchange rate of the national currency. The fall of the ruble will mean serious problems for enterprises focused on the domestic market.

• A strong ruble, in turn, poses a danger to the budget, as it makes the production of goods in the country less profitable, as competition with foreign counterparts increases. With a strong ruble, it is more profitable for businesses to resell goods rather than produce them themselves. Exports will also suffer, as sellers will receive smaller amounts in terms of the national currency, and the state budget may face a deficit. At the same time, experts agree that the Russian ruble remains an undervalued currency.

During the preparation of the material, Izvestia interviewed:

• Vasily Koltashov, an economist and head of the Center for Political Economy Studies;
• economist Alexey Rodin.