Inflation is managed to be kept under control without the economy slipping into recession. The world’s central banks are congratulating each other, reassuring each other and announcing future interest rate cuts. However, economists do not share their enthusiasm. And according to them, even the leaders of the world economy know that this is only the “calm before the storm”.
The rate of inflation has undoubtedly moderated, but it remains higher than during the covid pandemic. The main reason is the astronomical indebtedness of the United States, the national debt of the United States exceeded the threshold of 34 trillion US dollars for the first time at the beginning of this year.
The research institute Bloomberg Economics has examined about a million options for the budgetary policy of the United States. The results of roughly eighty-eight percent of the simulations showed that the debt will continue to grow, such a debt burden is unsustainable. Not only as a result of the American debt, inflation threatens to return to an even greater extent than it was after covid.
According to economists, the second wave of inflation is almost inevitable. According to them, the current situation on the gold market is an indicator that the world economy is not doing well at all. The fact that its price breaks one record after another is not without reason.
Precious metals led by gold are considered a safe haven in times of political, economic and social crisis, gold also has the ability to predict economic events. A similar situation to the one we find ourselves in now was experienced by Western countries in the 1970s, when there was an initial wave of inflation between 1973 and 1974, which was quickly suppressed.
At the time, many thought the worst was behind them, but inflation struck again in 1978 and 1980, reaching as high as 13.5 percent in the US. The price of gold at the time anticipated a second wave as it rose again after a consolidation phase from September 1976.
There have been several events in history when the rise in the price of gold predicted an economic storm, for example, in 2001, after the attack on the American Twin Towers, the price of gold rose from 250 US dollars to 1,900 in ten years.
Another example can be the year 2019, when the price of gold began to rise, which foreshadowed high inflation, which gained momentum from the middle of 2020 and peaked at the end of 2022. The current rise in the price of gold may thus mean that not only the world’s central banks suspect that another the wave of inflation is just ahead.
Another situation that will affect inflation is the spillover of economic power from the West to the East. There are several problems that Western countries are currently facing. First of all, it is the fact that the leaders are only beginning to cope with the huge increase in defense spending and the debt of Western countries is growing.
Western military spending will drive up inflation and the price of gold for decades to come. To which the East responds very flexibly by replacing the reserve dollar with gold. It is only a matter of time before China dethrones the US as the number one holder of gold, taking the next step in the long journey to replace the reserve dollar with the Chinese currency.
The author is the chief economist of Zlaté rezervy
(Editorially modified)
