Basel 4, Gold, Silver, Credits
As I mentioned in my previous articles, Basel 3 is a framework developed by the Basel Committee on Banking Supervision (BCBS) in order to prevent the collapse of the financial system after the 2008 financial crisis, or rather to enable it to float. It regulates the capital and liquidity requirements of banks. (more…)
What will the Fed’s interest rate decision be? All markets are holding their breath waiting for this decision. Expectations are in two different ways, as predicted. Some, especially the economy newspapers, are united in the opinion that the Fed will not increase interest rates. Another segment, namely, a group led by Wall Street, citing the critical increase in inflation and thinks that the Fed will take a precaution in this regard.
On the other hand, if we look at the Fed side, the question comes to mind whether it will raise interest rates or leave it same as it is. Also, the Fed says the inflationary situation is temporary. Fed thinks that the markets are not saturated with enough cash. This may be true. Namely, in the current crisis, many gigantic companies are in a zombie state. Those are too big to sink. They are unable to return the interest on their debts. These companies are kept afloat by being constantly fed with cash. Constricting the cash flow by increasing the interest rates will put the stock markets where these companies are located in a very difficult situation and perhaps cause the bubbles in these markets to start to burst.
The Fed is actually at a crossroads. Either by continuing to print money, it will protect the markets from the bubbles that are about to burst for a while, in which case inflation will continue to increase, or it will suppress inflation while causing monetary contraction by increasing interest rates.
In fact, the strongest expectation is that the Fed will keep rates steady. So where does the money go in such a case? In this case, investors will direct most of their money towards gold, silver or cryptocurrencies. The Fed’s thinking on gold and cryptocurrencies in general is to suppress them.
The expectation of Wall Street experts is that the Fed will move in the direction that it will want to make the dollar stronger in this direction.
Finally, in this case, it would be best for risk-averse investors to wait for the Fed’s interest rate decision. On the other hand, if risk-lover investors act assuming the Fed’s rate hike, they can be expected to take a strong stance on the dollar side.
There has always been an inverse relationship between gold price and the dollar. One of the measurement scales of the demand for the dollar is the DXY index, which is the average index of the dollar equivalent of 5 countries’ currencies. If the DXY index is increasing, it means that the demand for dollars in the world is increasing. As can be seen in the graph, the reverse relationship between the dollar DXY index and the gold ounce price in the last year is quite clear. With the DXY rising, the gold price is falling and vice versa. The DXY index has started to decline accordingly, as the reserve currency of the dollar has weakened more and more, and gold has started to attack. This was an expected development. (more…)
We entered the first phase of the period that the world will call the “worst financial crisis” last March 2020. The main cause of this crisis is the system itself. We are approaching the end of the global unlimited money experiment we have experienced since 1971, when the dollar as a reserve currency was completely disconnected from gold. In order to better understand the fiat money system (fiat paper money, currency) we are in, we must first understand the system known as the gold standard, in which money is printed based on valuable commodities such as gold and silver. One of the reasons for the global financial crisis we are in and is at the beginning is that we do not know the difference between the exchange tool called fiat money (originally called currency) and money (commodity, money, which is limited and has its own intrinsic value), which we use as cash and is printed unlimitedly. Fiat money has features such as being a medium of exchange, being a unit of value calculation, being portable, divisible, and being the same as its counterparts. In fact, money also has an intrinsic value like gold and silver, apart from the above. Throughout history, whoever owns more gold has made the rules. (more…)