Given the impact of geopolitics on the global economy, financial and commodity markets, and considering current events, it is surprising that the reactions on the stock exchanges are not significantly more pronounced than they currently are. The incident in Poland, the colored revolution in Nepal, the Israeli attack on Qatar, the collapse of Macron’s government in France and the downgrade of France’s credit rating by Fitch, preparations for a mass uprising against Starmer in the UK, and the likely aggression of the US against Venezuela. Is this the new normal or preparations for a tsunami that is yet to come?
Waiting for the Fed
Among other external factors, one of the key events is the Fed meeting this Wednesday. A unanimous opinion has formed in the market that the Fed will cut interest rates by 25 basis points on Wednesday. The first cut in nine months. In addition to the interest rate cut, Powell’s press conference will influence the risk tone, the direction of the dollar, and commodity prices – especially if it signals further cuts, addresses tariff risks, or indicates weakness in the labor market.
Gold typically rises during crises, when the prices of other assets fall. The current rise in the price of gold indicates that investors are no longer viewing stocks as a means of risk protection. According to analysts, demand for the precious metal is driven by expectations of Fed policy easing, geopolitical risks from Ukraine to Taiwan, and concerns about the political and financial stability of the US. Central banks now hold more gold than US Treasury bonds for the first time in nearly 30 years.
Gold Accumulation
Recent research has also shown that 43 percent of central banks plan to increase their gold reserves in the next 12 months. For decades, the market for US Treasury bonds has been the foundation of global foreign exchange reserves. Holding gold instead is a clear move to reduce dependence on the US dollar and the US financial system. There is also a strong possibility that central banks are increasingly concerned about the long-term health of the US fiscal situation. The rising debt of the US government and persistent deficits make US Treasury bonds riskier. Gold, with no counterparty risk, is the ultimate protection against fiscal excesses.
On global markets, oil prices rose slightly last week (Brent +2.3 percent) as the US threatens stricter penalties on Moscow and buyers of Russian oil, but the price increase is limited by estimates of greater supply than demand. Thus, oil prices have recovered some of the losses from the previous week, primarily due to announcements of stricter penalties on Moscow and buyers of Russian oil. Trump proposes that the G7 group raise tariffs on China and India, the main buyers of Russian oil, by 50 to 100 percent to expedite peace negotiations in Ukraine. Support for prices is also provided by Ukrainian attacks on Russian energy facilities.
Increased Oil Production
On the other hand, rising prices are limited by increased production. A week ago, a group of eight OPEC+ members decided to release an additional 137,000 barrels per day to the market in October. This is, however, a significantly smaller increase than during the summer, but demand is not strong enough to avoid surpluses. Thus, the International Energy Agency (IEA) estimates in its new monthly report that supply should increase by 2.7 million barrels per day this year and by 2.1 million barrels per day in 2026. The growth estimate is 200,000 barrels higher than a month ago. And the world’s largest economies, the US and China, are growing slower than expected, so demand for oil is weaker than estimated.
