Are the Czech Republic, Hungary and Romania threatened by a currency crisis? What happens to the gold?
01. 12. 2022
In recent days, there have been a number of reports predicting a currency crisis in the Czech Republic, Hungary and Romania. Analysts of Japanese Nomura Holdings assessed the current risk as the highest in 20 years. The problems affect a number of countries, but unfortunately these countries are among the most threatened ones.
According to Bloomberg, Nomura Holdings analysed the current risk of a currency crisis based on eight indicators. Hungary, Romania and the Czech Republic, for example, are underperforming in terms of foreign exchange reserve-to-import ratios, short-term interest rates and budgetary and trade indicators. It seems that the next year could be a turning point for national currencies. The Czech crown has been stabilised by the National Bank's interventions this year. Since May, the CNB has spent 16% of its foreign exchange reserves (roughly EUR 25.5 billion). The CNB itself expects the Czech crown to fall to CZK 26 per euro next year (i.e. about 6% depreciation).
The Hungarian forint is even one of the worst performing currencies in emerging markets. It has been losing its strength because of disputes over EU funding. Its decline can also be seen in relation to gold, where the price of a troy ounce has risen by around HUF 100,000 since the beginning of the year. The Hungarian National Bank raised interest rates to 13% to save its balance sheet with the euro and the US dollar.
What does it mean for gold? Nothing. A possible fall in national currencies is unlikely to have any effect on the world gold price, but for many households the price of gold in domestic currency will rise. While households buy fewer goods and services with their money, gold will preserve the value of savings and is likely to increase it even more.
Moreover, gold is the world's universal currency. J.P. Morgan stated, “Gold is money. Everything else is credit.” Precious metals have shaped society for millennia. In The Power of Gold, Peter L. Bernstein declares: “Gold has motivated entire societies, torn economies to shreds, determined the fate of kings and emperors, inspired the most beautiful works of art...” That kind of power cannot be denied to it. Even today, with the high value of the dollar and the general decline in assets, gold has corrected, and is doing relatively well given the sharp decline in other assets. Moreover, in times of recession, which is apparently ahead of us, gold fulfils not only the function of a store of value, but also as a crisis insurance policy and a stabilizing asset for many investment portfolios.
CPM Group's Jeffrey Christian expects gold to trade at USD 1,800 in 2023 before its price rises further. Gareth Soloway, chief market strategist at InTheMoneyStocks.com, is even more daring. Next year, he predicts the precious metal to be worth between USD 2,400 and USD 2,500 per troy ounce.
Simply put, according to various analysts, it is possible that the “real” economic crisis is just around the corner, and it looks like it will affect us significantly. According to experts, gold can be a way to survive it in relative peace. This is a time when gold is relatively cheap given the expected developments.