FED Liquidity crisis

FED Liquidity crisis
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It is important to note that the financial system faced a liquidity crisis in March. In such a situation, when there is almost no free money, and no one lends, financial market participants begin to sell assets at any price in order to use the money for some urgent operational needs.

A striking example here is Saudi Arabia. In March, the Kingdom sold US Bonds for unprecedented $ 25.3 billion. Caught in the arms of the oil crisis, which deprived the country of cash flow, the authorities began to blindly sell off the most liquid assets they had.

Of course, there is another important pattern that works in almost every case. If they sell something, they obviously buy something. In this case, the object of investment was gold, and this was another confirmation of an already emerging trend.

Since about the middle of last year, the volume of Central banks’ reserves in gold has been steadily growing, while in T-bills, on the contrary, it has been decreasing.

What does the expert community think?

According to many experts, the reason for choosing gold instead of dollars is the US policy.

The United States is too active in imposing its own rules on the rest of the world, taking advantage of the dollar's status as a reserve currency, threatening or imposing sanctions, printing money out of control, and increasing the national debt. All this undermines confidence in the US currency, and the dollar system as a whole.

It is also worth adding that the demand for gold is much higher than for other precious metals, in particular, silver. However, recently, purchases have been observed in this market.

In March, the cost ratio of an ounce of gold to an ounce of silver reached 125, but now it is approaching the level of 100.

Certain historical trends can be traced here. During almost all crises and wars, the price of gold broke away from the price of silver, but then always returned to lower levels – even when the world faced Adolf Hitler or the great depression.

This suggests that as the financial markets stabilize with investors continuing to get rid of dollars and buying precious metals - silver and platinum - bringing prices to historical alignments.

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Finances

Finances » Banks

Finances » Economy

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