The global Covid-19 pandemic was tough on economies worldwide. Unfortunately, the fragile economic recovery from the pandemic may be destroyed due to the rising geopolitical tension in Ukraine.
Is Europe about to experience another debt crisis, and if so, how will it affect the precious metals market?
The Possibility of Another Debt Crisis in Europe
In 2010, Europe saw a sovereign disaster in terms of international debt, and the effects are still felt today. Now, with the pandemic still hurting global economies, there is a good possibility that Europe may be heading towards another debt crisis.
Economic progress amongst most countries in Europe last year has been inconsistent. While Italy and France saw healthy growth (considering the pandemic) at more than 6% GDP, Germany struggled with a lower GDP growth rate of only 2.7%. On the other hand, Spain, a country highly dependent on tourism, was hit especially hard by Covid-19 during 2020. As of present, the country has failed to recuperate its losses and has experienced meager growth of 4.9%.
As a result, a rise in inflation last year saw European consumer products increase in price. Inflation was felt in the energy, foods, services, and industrial goods sectors. A continuing inflation surge could affect Europe on a macroeconomic level. If the European Central Bank is unable to tackle rising inflation, this could result in a higher debt ratio and an escalating cost of debt. This could mean another debt crisis for Europe.
The Demand for Precious Metals
The impact of inflation in Europe could mean central banks need to to raise interest rates further than targeted, and this could cause an economic recession. However, precious metal investors already know what to invest in during rising inflation and times of crisis.
While gold has always been a hedge against economic crisis, 2022 saw its best. The favoured asset has been trading at over $1,900 per ounce in the international market, up from $1,796 at the beginning of 2022.
When the market is volatile, gold is a safe investment and acts as a safeguard against an unpredictable stock market for investors. Periods of high inflation can be the best time to invest in assets like gold and silver as they have a history of delivering greater long-term returns.
Conclusion
A time of crisis fueling precious metals can have one likely outcome. Investors should take advantage of lingering economic conditions, which continue to weaken with the geopolitical issue in Ukraine.
