TBC Capital has released a new publication exploring how recent global economic developments, particularly the sharp rise in gold prices, affect businesses’ optimal foreign-currency financing strategies. The update continues a series of analytical reports assessing major international events and their implications for currency risk management.
Global events and business decision-making
TBC Capital reported that the latest report aims to demonstrate how companies of all sizes can turn large-scale global shifts, such as changes in gold prices, into practical insights when making strategic financial decisions. The analysis builds on the framework introduced in the research ‘Managing Currency Risk and Opportunities in Multi-Currency Economies,’ published earlier this October. In Georgia, that framework primarily concerns the lari, euro, and U.S. dollar.
The agency notes that if Georgian corporates had followed the recommendations of the framework’s final stage, evaluating equilibrium exchange rate deviations, introduced back in 2019, they could have collectively gained up to 6 billion GEL in the past five years.
What gold’s surge signals for EUR–USD trends
The current report focuses on what rising gold prices may imply for the medium- and long-term relationship between the euro and the U.S. dollar. While short-term fluctuations have played a role in gold’s recent spike, TBC Capital mentions that structural global factors are now more influential. These include: expansive fiscal policies; growing institutional demand for gold; diversification of central bank reserves; weakening of the U.S. dollar’s ‘safe-haven’ dominance; shifts in the traditional correlation between risky and risk-free assets.
Taken together, these trends generally point to a negative outlook for the U.S. dollar and a more positive environment for the euro. TBC Capital’s detailed arguments, supported by its proprietary quantitative model, are presented in the full publication.
Practical implications: USD or EUR borrowing?
The analysis produces a nuanced conclusion regarding currency allocation in corporate debt structures: the recent strengthening of the euro makes euro-denominated borrowing appealing. However, TBC Capital’s baseline scenario still expects additional euro appreciation while the U.S. dollar is projected to remain relatively weak in the medium term, a factor that supports more borrowing in USD.
Based on this logic, the updated recommendation is to maintain a higher share of USD liabilities, with the dollar still playing a larger structural role than the euro.
The role of the Georgian Lari
Turning to the lari, TBC Capital emphasizes two key dynamics:
- Short-term: Deposit ‘larization’ remains the main driver.
- Medium-term: The global weakness of the U.S. dollar supports the lari.
Additionally, the lari currently sits below its estimated equilibrium level. This increases the likelihood of appreciation which would also have implications for inflation. For businesses with higher risk tolerance, this may make foreign-currency borrowing more optimal during a period when the lari has stronger appreciation potential.
Uzbekistan Som
The report also assesses the impact of rising gold prices on the Uzbekistani som. While gold and global dollar weakness have helped strengthen the som recently, TBC Capital stresses that structural improvements have played an even greater role, such as: inflation falling toward its target; improved external balance (excluding gold); stronger foreign-exchange reserves; normalizing credit activity; growth in foreign investment.
Therefore, even if gold prices decline, TBC Capital does not expect this to automatically weaken the som.
