According to a respected economist, the gold market will continue to be well supported. Accordingly, gold prices will sooner or later see a sustained break above $2,000 due to the biggest banking crisis since the end of the Great Financial Crisis of 2008.
A rise in gold prices is imminent
David Rosenberg, founder of Rosenberg Research, says in an interview that gold and bonds remain two of his biggest investments for 2023, as the banking crisis threatens to push the global economy into a deep recession. Rosenberg has been bullish on gold since December after publishing its 2023 outlook report.
Rosenberg’s comments come after gold prices fell from nearly $2,000 last week while staying above $1,900. Rosenberg says it’s only a matter of time before gold prices rise, as the inverted yield curve shows the economy has a 90% chance of going into recession this year. He adds that what pushes the economy to the edge of the abyss may be a new banking crisis. In this context, Rosenberg makes the following assessment:
Big banks are solid. They are well capitalized. There are liquidity buffers. In fact, they can come out much stronger than that. Now the problem is with small banks and they are not that small anymore. Today, small banks collectively have $7 trillion in assets.
There is another part of the story!
cryptocoin.comAs you follow, the US government and the Federal Deposit Insurance Corporation (FDIC) have taken steps to guarantee depositors all funds they hold in banks. In this environment, Rosenberg says the quality of assets held at these regional banks remains a big question mark. As tensions over the collapse of Silicon Valley Bank and Signature Bank have waned recently, Rosenberg warns that “there’s always more than one cockroach in the kitchen.” Based on this, he makes the following statement:
Everyone focused on deposit insurance, concentrating uninsured deposits on the liability side of the balance sheet. But the other part of the story is ‘What do the assets look like?’ will be. No one is talking about the quality of assets, as these traditional loans relate specifically to commercial real estate business loans, credit cards, and auto loans. Most of these loans are held at the regional bank level.
Economic conditions will worsen
The U.S. credit market saw significant volatility last year as the Federal Reserve aggressively increased interest rates by 500 basis points. Rosenberg notes that the economy is starting to see a new rise in default rates on commercial real estate, auto loans and credit card payments. Rosenberg says economic conditions will worsen as it may take up to 12 months before consumers begin to feel the effects of the Fed’s monetary policy tightening. He notes that while interest rates of 5 percent are still relatively low compared to historic levels, the change is unprecedented. In this regard, he comments:
I don’t know if I want to call it a crisis, but we are entering a new chapter in the credit cycle, moving from a positive credit expansion to a negative credit expansion. This will only reinforce the recession that is already in place.
Gold prices, so it performs well
Facing the Federal Reserve’s May monetary policy meeting, Rosenberg thinks the central bank has finished raising interest rates. However, he adds that the damage has already been done and investors are now waiting for the other shoe to fall. In this environment, Rosenberg says the Fed will have to cut interest rates before the end of the year. Markets see a 50% chance of a rate cut in June, according to the CME FedWatch Tool. At the same time, the market sees the potential for Fed Funds rates to end the year 100 basis points lower than current levels. Rosenberg shares the following assessment:
If the Fed is to cut rates in the second half of this year, where do you want to be? You want to own some gold and you want to own some bonds. Real interest rates will go down; The US dollar is falling, which is why gold prices are performing so well. Despite the volatility in February, the long bond, long gold weight strategy increased 8% this year.
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