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LAWRIE WILLIAMS: All Fall Down – Except Gold

This week opened on an almost overall negative tone with virtually everything falling in value apart from the safe havens of gold and the U.S. dollar which both made gains.  Equities were down across the board including, perhaps surprisingly in the light of the yellow metal’s positive performance, the gold stocks.  Bitcoin continued its decline to fall below $30,000 and the minor precious metals, particularly silver confirming its ‘devil’s metal’ reputation also all fell back sharply on Monday.  Indeed by this morning the Gold:Silver Ratio (GSR) had risen back to over 72, its worst level for silver since January.  Crude oil prices also suffered setbacks.

Commentators have put the declines down to an apparent resurgence of the COVID-19 coronavirus across the globe due probably to the rising incidence of the seemingly more easily transmissible delta variant, which is causing in particular a big spread of infections in the UK, but is beginning to become dominant in many other countries too..  This virus strain is thought to have originated in India, causing the enormous spike in infections in that nation a few months ago and with the huge worldwide Indian diaspora aiding its spread before its threat was fully recognized , the world seems to be entering a new dangerous virus phase.  Thankfully those countries with high vaccination rates seem to be reporting fewer hospitalizations and mortalities despite higher infection levels, but it is early days yet.

The falls in global equity prices seem to be continuing today with further declines on Asian bourses although European markets opened higher after Monday’s heavy falls.  However market watchers will be keeping a wary eye on U.S. trends when markets open there later today.  As in other countries the coronavirus pandemic infection rate is seeing a strong rise in the U.S., which could well affect market sentiment.

The UK and Singapore both seem to have accepted that we are going to have to live with the virus and are easing restrictions, although the latter city state is taking a far more cautious approach.  Meanwhile in the UK new infections seem to be rising fast and yesterday’s almost total easing of mandatory restrictions will likely see figures continuing to rise sharply.  The government seems to be of the opinion that if the country cannot ease most restrictions in the summer when virus transmissions are supposedly lower, then it may never be able to do so,  Continuing heavy restrictions could thus lead t o even further damage to the economy.  The latest move is thus very much a political decision setting infection rates against economic damage.  Whether public opinion will allow it to continue on this path, despite rapidly rising cases, remains to be seen.  Much will depend, no doubt, on hospitalization numbers and mortality rates.

Gold meanwhile seems to have so far been doing its job of wealth protection in the face of falling values for other asset classes.  These include, most notably, bitcoin, which had been heavily touted as a wealth protection alternative to gold, but has been slipping sharply in value over the past couple of months.  It would appear to have no substance behind it and some key players in the sector are being beset with some highly adverse publicity and the beginnings of regulatory controls, which don’t bode well for its future.  Gold looks to be very much the safer bet for now at least, particularly all the while rising inflation has pushed real interet rate ever further into negative territory.  Negative real rates are very much seen as a positive for gold.

We have also seen a new, and possibly unexpected, substantial central bank gold purchaser in Brazil.  It is reported that the nation added some 41.8 tonnes to its gold reserves in June complementing Thailand’s addition of 90 tonnes over April and May and Hungary’s  63 tonnes in March.  Ongoing monthly purchases by countries including India and Kazakhstan are keeping the central bank buying momentum going this year and Poland and Ghana have also intimated they will be adding substantial amounts to their reserves.  There is speculation, too,  that Russia may return to the gold-buying club given the recovery in the price of oil and gas, its principal export earners, although this week’s oil price setback could delay this.  (Russia had been using gold sales on the international markets to allay shortfalls resulting from lower export earnings from oil and gas in it balance of payments position).

Of course whether the world’s No. 1 gold producer and consumer, China, is also adding to its reserves remains unknown.  China’s gold reserves are widely thought to be considerably in excess of the 1,948.3 tonnes it reports to the IMF.  Some of its gold holdings are probably held in separate accounts – controlled by state-owned banks and the military for example - which it suggests are not subject to reporting to the IMF.)

20 Jul 2021 | Categories: Gold, Silver, China, Dollar, Bitcoin, UK

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