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The policy rates of several central banks have risen rapidly over the past year and a half, in response to high inflation. The effects of higher interest rates are becoming increasingly noticeable. What exactly does the effect of those rate hikes look like and what is the outlook for precious metals?
The ECB has another interest rate decision scheduled for next week. Last month, the interest rate was raised again by 0.25 percentage points. As a result, the policy rate now stands at 4.50 percent and the deposit rate at 4 percent. The marginal lending rate, the interest rate that banks pay if they want to borrow extra from the central bank, now stands at 4.75 percent. It is possible that interest rates will be raised again at the next meeting in Athens. Inflation in the Eurozone was still high in September 4.3 percent on an annual basis, well above the policy target of 2 percent.
It is also quite possible that interest rates will not be raised this time and that the ECB will take a pause to see how various factors develop. Although inflation is still too high, the figure has been declining for several months. The effects of the interest rate hikes are also starting to become more noticeable, more on that later. The last ECB meeting of this year is scheduled for December. Then there will also be more data available to central bankers. Economists at ING expect That's why interest rates won't go up again.
However, the economists do point to the difficult situation the central bank is currently in. For example, geopolitical tensions are now rising again due to the events in Israel, which is also causing the price of energy to rise again. If energy prices turn out to be higher than expected, interest rates may have to remain high for longer, the economist concluded Han de Jong. Former DNB president Nout Wellink also indicated in a podcast with {{P3}} that inflation may continue to be structurally higher, partly due to the energy transition and the accommodative monetary policy of recent years. The current President of DNB, Klaas Knot, said last week that we are in a period of stagflation, although Knot himself did not see that as a problem. This is because unemployment is still very low. So the negative effects of the recession are not too bad for the time being.
The consequences of higher interest rates are always noticeable with a lag of more than a year. So, the effects of the recent interest rate hikes are now starting to be felt. For example, high interest rates make projects more difficult to finance. So it wrote Financieele Dagblad that companies that build large wind and solar energy projects are now in trouble, as these projects are often financed with large loans. The number of bankruptcies in the Netherlands also increased, although this is also due to other costs.
Normally, the housing market is also affected by the rise in interest rates. In 2022 and early 2023, house prices fell as mortgage rates rose. However, in the course of 2023, house prices recovered slightly. Klaas Knot cited low unemployment as the reason for this. Employees still have sufficient income. Wages have also risen sharply this year in response to high inflation. For example, wage growth in the first quarter was the largest in 40 years, which means that borrowing capacity is also increasing. As a result, house prices were able to rise, while interest rates were at a much higher level. The housing market is now recovering from last year's decline, it wrote AD.
In America, the number of Foreclosures, a case in which a person is forced to sell his or her house, 34 percent compared to last year. The rising cost of living is causing problems for U.S. households. The number of Foreclosures could rise even further, now that the government is stopping a scheme that gave students a pause to pay their student debt. As a result, students will have to deal with higher costs in the coming months.
Also coming from Germany Worrying signs, where the housing sector is in serious trouble. Many construction projects are cancelled in our eastern neighbors. A recent survey by the Munich-based Ifo Institute showed that as many as 21.4 percent of housebuilders reported canceling their projects in September. Reasons for the disappointing figures include high interest rates, which jeopardize the financing of these types of projects. Construction companies are also struggling with higher costs for energy and materials.
House prices in Germany fell after interest rates were raised. (Source: christophe-barraud.com)
House prices in Germany fell sharply. In September 2023, prices of existing houses were 11.2 percent lower than in September 2022. Prices of new-build homes were on average 9.8 percent lower. In the Netherlands, there has been no significant decline so far. This is mainly due to the great shortage of housing in our country.
It is striking that gold is relatively performs well in this period when interest rates are going up. Although the Gold price Although the gold price has been somewhat affected by higher interest rates, the gold price is still higher than a year ago. And that's despite the fact that, historically, gold has always performed well after the period of interest rate hikes. One reason for gold's good performance is that the past two years have been turbulent. For example, a war broke out on the European continent, there was high inflation, fears of a crisis increased and several banks in America and Europe began to falter.
Recently, the price of gold rose to its highest level in four weeks, following the events in Israel. Since the Hamas attack, the price of gold has risen six percent. Gold is once again showing itself as a safe haven and as a refuge in times of uncertainty. Gold Rose for example, when the war in Ukraine broke out. Should the conflict in Israel escalate further, a further rise in the price of gold is quite conceivable. Also, the end of interest rate hikes is in sight, which is also a good sign for precious metal. Finally, Banks vulnerable, especially in America, where money market funds offer banks a lot of competition. All in all, the outlook for precious metals remains good.
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On behalf of Holland Gold, Paul Buitink and Joris Beemsterboer interview various economists and experts in the field of macroeconomics. The aim of the podcast is to provide the viewer with a better picture and guidance in an increasingly rapidly changing macroeconomic and monetary landscape. Click here to subscribe.
