Goldman Sachs noted that investors do not trust the current financial policies of the US authorities. The falling US dollar is forcing investors to buy gold as actively as possible.
The country fears a rise in inflation due to the unprecedented printing of the US dollars and fiscal stimulus from the Federal Reserve in the amount of $2.8 trillion. This could lead to the depreciation of the currency and, as a consequence, to a loss of the US dollar's status as the main reserve currency of the world. Goldman Sachs initially warned of the long-term incentives' consequences.
The US dollar hit a two-year low against the euro. The situation became more critical after the European Union approved the €750 billion Recovery Fund.
Based on the market situation, Goldman Sachs raised its forecast for the price of gold as the precious metal reached historic highs of $1,950. However, gold prices may continue to rise if the US real interest rates decline.
The last time the United States faced such serious economic problems was in the postwar period. Stephen Roach, a professor at Yale University, expects the US dollar to drop by a third against the other major currencies in 2021-2022. Today, it is difficult to imagine how long the economic recovery will take.
The US economic activity continues to remain below the pre-crisis levels. The situation is complicated due to the dreadful epidemiological situation in the country and the rising number of unemployed people amid the pandemic. The number of coronavirus cases is growing rapidly every day. This complicates the process of economic revival. According to Fed Chairman Jerome Powell, the US economy will need even more help from both the Fed and Congress.
Mr. Powell assured investors that the financial assistance from the Fed will continue for a long time. The Fed is not going to raise rates. He also promised to use the entire arsenal at the disposal of the Central Bank to support further economic recovery.
Jefferies economist Aneta Markovska noted that the Fed would take serious measures and announce a new approach to forecast interest rates and the course of monetary policy in September. Also, the Fed will finalize the revision of the long-term strategy of the monetary policy.
From September and until the end of this year, the Fed is likely to start using a yield curve control tool, as Markowska said. In her opinion, the American Central Bank will begin targeting at a certain yield level on government bonds with maturities from 3 to 5 years.