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In this weekly selection, we see that the gold price has already broken another record and we read ING's forecast for the gold price in 2025. In this week's podcast, we discussed the EU's declining competitiveness and the problems at Volkswagen. However, the German car manufacturer is not the only one with problems, the entire industry in the eurozone is struggling. What's wrong? We also look at the ECB, which cut interest rates as expected. ING makes a remarkable prediction about future interest rate cuts by the ECB.
For the regular reader of Holland Gold it may be starting to get a bit monotonous, but since it is the right monotony, we report it anyway. The Gold price broke another record! At the time of writing, the price stands at more than €74,500 per kilo.
The gold price on September 13, 11:35 (source: Holland Gold)
According to ING, the rally of gold is only Just getting started. They believe that the rate cuts will provide a new impetus to gold prices (Read here how that works). The bank has therefore revised its gold forecast upwards and now expects prices to average $2,700 per ounce in 2025. They also mention that strong purchases by Central Banks, Substantial purchases in Asia and geopolitical tensions are contributing to gold's record-breaking rally.
Zerohedge writes that ING does not mention that the so-called victory of central banks over price inflation paves the way for a return to inflationary policy measures. "Lowering interest rates and ending balance sheet reduction will increase the money supply, and the expansion of the money supply is inflation by definition." This in turn will have an additional upward effect on the gold price. "ING doesn't mention any of this, and yet they still predict an optimistic future for gold!"
In the meantime we read that the Gold Reserves at the National Bank of Serbia increased by more than 5 tonnes, the largest monthly increase since 2019. The Reserve Bank of India (RBI) also bought gold. According to Jack Highland the RBI built up a stock of 804 tonnes from its inception in 1935 until the end of 2023. That's an average of 9 tonnes per year. This year, the RBI bought 45 tonnes of gold in just eight months.
Not every country is open about how much gold is being bought. Yesterday, Jan Nieuwenhuijs published a article with evidence suggesting that the Saudi central bank has secretly purchased 160 tonnes of gold in Switzerland since the beginning of 2022.
In this week's podcast, we discussed the Decreasing European competitiveness. In this context, the article this week we discussed the deteriorating European competitiveness and Mario Draghi's report. You may therefore already know that Volkswagen is considering closing factories, but the German company is not the only European car manufacturer in dire straits. According to an article published this week on Bloomberg A third of Europe's major car factories, including those of BMW, Mercedes-Benz, Stellantis, Renault and Volkswagen, are running at half capacity or less.
Volkswagen vs World stock index (source: Corné van Zeijl)
Annual car sales in Europe remain stuck at around 3 million cars, below pre-pandemic levels. As a result, factories remain understaffed and thousands of jobs are at stake. Another major challenge is the lower-than-expected demand for electric vehicles, a product in which many European manufacturers have invested heavily. At the same time, competition from American and Chinese manufacturers is increasing. This forces manufacturers to find savings in Europe in order to remain competitive. The automotive industry accounts for more than 7% of the European Union's gross domestic product and more than 13 million jobs.
Status of European car factories (source:Bloomberg)
Experts warn that factory closures are inevitable. Matthias Schmidt, an independent auto analyst, told Bloomberg that "more automakers are fighting for pieces of a smaller pie." The combination of rising labour and energy costs, partly caused by the war in Ukraine, is increasing the pressure on the sector.
According to Pieter Cleppe, an expert in European politics and policy, Europe has many of these economic difficulties to thank for itself. He cites overregulation and climate policy as important causes. "The EU's decision to introduce a de facto ban by 2035 on a product in which European manufacturers such as Volkswagen are competitive – cars with internal combustion engines – has effectively functioned as a subsidy for electric vehicles, a product in which Chinese and American manufacturers are more competitive."
A large part of the industry within the eurozone is struggling. This is also reflected in the image below that shows the results of global production surveys. The eurozone's biggest producers, France and Germany, are in the wrong corner. In fact, the Netherlands is at the very bottom. In August Wrote that Dutch production has been declining for a year now. Switzerland and the UK, two European countries that are not in the EU and currency union, are doing surprisingly well.
Global Manufacturing Surveys (source: Patrick Zweifel)
We will see in the near future whether European politics will take a different path. For now, the German government still seems to be proud destructive energy policy. Not everyone is positive about Draghi's report, with strategic economic plans that should make the EU competitive again. Nassim Nicholas Taleb, the influential writer and thinker on financial markets, was quite harsh in his assessment of X. He wrote: "Mario Draghi has a somewhat misguided view of the growth potential in Europe. It's similar to giving protein to people in a nursing home in the hope that they'll grow a few more inches. And the $1 trillion or so investments come with debt, which will only make the problems worse."
As expected, the European Central Bank lowered interest rates by 0.25 percentage points to 3.5 percent last Thursday. Previously this year, the ECB has already lowered the deposit rate by the same number. Major Western central banks have started cutting interest rates as data suggests that the biggest wave of inflation in a generation has subsided. It is expected that the Fed will cut interest rates next week.
Bank Governor Lagarde indicated that the decision to cut interest rates was unanimous. European Stock markets reacted positively to the decision. Europe's Stoxx 600 closed up 0.78%.
ECB Deposit rate and CPI inflation (source: Holger Zschaepitz)
It Inflation rate in the eurozone fell to a three-year low of 2.2 percent in August and the German figure even surprisingly fell to 2 percent. The ECB Do expect the inflation rate to rise again later this year, but that it will fall back to the 2 percent target in the second half of next year.
The economy is growing less than expected. While the services sector supported growth, the services sector contributed to the industry and construction negatively. Domestic demand weakened, as households consumed less, businesses invested less and housing investment declined. The ECB expects the recovery to pick up over time, as rising real incomes allow households to consume more.
ING expects weaker growth to lead to faster rate cuts by the ECB next year. They write: "Given that the ECB's forecasts have structurally overestimated the timing and strength of the eurozone economy, it seems only a matter of time before a bleaker growth outlook leads to more aggressive rate cuts."
(Photo press conference 12 September ECB by: ©Felix Schmitt for the ECB)
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On behalf of Holland Gold, Paul Buitink interviews various economists and experts in the macroeconomic field. 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.
