When it comes to the price of gold or where it is headed we always look to the U.S. Even when talking about the gold market and gold price Melbourne we still look to the U.S. So far, the US financial system is very “liquidity”. This is because US credit levels are near multi-year lows. The likelihood of a liquidity crunch or a crisis with the U.S credit spreads being close to the lowest levels in decades is not only low, but it is also zero.
However, the trend of money supply growth warns that a transition from expansion to recession could begin as early as the first half of 2022, paving the way for a major event/crisis in financial markets in the second.
When it comes to financial crises, the U.S government has been printing money as a solution to the current economic recession. The year-over-year growth rate of real money supply in the United States peaked at nearly 40th in 2021 but it has since fallen to around 7%.
This prolonged sharp decline is due to the Fed withdrawing as much as $330 billion from the financial central system during the month. In other words, when the Fed started its quantitative easing in September, the Fed has pulled out $3 through its Reverse Repo program. This worked out to about $1.43 trillion. The U.S Fed did this was an attempt to tighten the monetary policies and avoid surplus currency. Whilst all this was happening, the gold price had a good year, and according to experts might go up to $2,000 in 2020.
By pulling this money through this Reverse Repo program the U.S RRP program has provided a home for all the extra dollars lurking in the economy. The money that has been withdrawn through the RRP will be returned to the U.S. financial system possibly next year.
Like the U.S and most other countries, the Australian reserve bank has also been printing more through its QE program. So far, the Australian government has managed to print an additional $100bn. This is because, despite the strides that have been made and the opening up of the economy, things aren’t moving as fast as they should. There is still a lot of damage that needs to be repaired. High unemployment numbers and rising inflation has made it hard for the RBA to stick to its targets. As that happens, the unemployment rate has been higher than it has ever been in 20 years. It stands at 6.6%. Even though people are slowly returning to work, it is still expected that it will be at 5.5% by the end of 2022. What this means is that the gold price Melbourne will still be high which is good news for gold bullion investors who are buying gold or holding on to the gold they currently own. It will become crucial to keep investing in gold as the government programs are expected to wind down in 2022. Just compare the price of gold bullion bars between 2019 and 2021. The price will likely be high in 2022.
