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I would strongly recommend readers of this column to consider subscribing to Grant Williams’ ‘Things that make you go hmm..’ newsletter –  (Grant and I are not related - we Williamses get verywhere!)  In it Grant, an acute observer of global financial and political trends and events, takes an informed, and always witty, look at key aspects of markets and geopolitics and draws conclusions which, as the newsletter title says, may well ‘make you go hmm..’  He has not always been correct in his conclusions, but is most of the time.  The newsletter is very comprehensive on the subjects on which it concentrates – in the latest edition for example, there are over 30 pages of Williams’ own commentary well illustrated with apposite charts, followed by a series of articles and videos from some top commentators on global financial and geopolitrical matters.

Williams always has a theme for his newsletter commentary and his latest one draws on a piece of repartee between Danny Kaye and Basil Rathbone from the 1955 film, The Court Jester, which I have altered slightly for this article’s title as Williams is primarily making a point about how what is going on in the world today is favouring gold as a long term investment. (The repartee he refers to for those unfamiliar is “Get it, Got it, Good”).

The newsletter main article is somewhat scathing about some anti-gold commentators, noting that -they tend to be hugely date-selective on the price inflection points they choose to make their case.  He also takes a dig at Nobel Laureate Paul Krugman who appears to have come up with diametrically opposing views on the likely effect of a Trump Presidency once it became apparent that The Donald  would win the nomination (‘looking at a global recession with no end in sight’) and then five days later (‘don’t be surprised if economic growth accelerates for a couple of years’).

But overall Williams comments on some of the likely pitfalls ahead for the U.S. and global economy under a Trump Presidency, and the connected fate of the petrodollar which has already been under threat via policies being conducted by China and Russia in particular.  The destabilising effects of this could be hugely positive for gold and negative for the U.S. dollar, particularly given also that China has called for an increasing role for the yellow metal in the global monetary system and with both countries substantially boosting their gold reserves.  This is in concert with both these powers, and some other nations, running down the amounts of U.S. Treasuries in their Foreign Exchange holdings, all of which could weaken the current dominance of the U.S. in global trade and finance.

Oil is perhaps key here.  Two of the biggest oil producers, Russia and Iran are already at the heart of early moves away from the petrodollar whereby all transactions involving oil were conducted in U.S. dollars.  This meant that any country requiring oil (i.e. virtually the whole world) needed to keep big holdings of U.S. dollars in their reserves.  China has now negotiated deals with both Russia and Iran to pay for oil in yuan.  Simultaneously China is planning to set up futures trading in oil in yuan via the Shasnghai Energy Exchange to contend with tyhe standard WTI and Brent prices. 

Chins is now also the world’s biggest oil importer – how long before Saudi Arabia, keen to command an even bigger slice of Chinese oil imports – negotiates a deal with China to accept yuan – or perhaps gold – for its oil?  U.S./Saudi relations are already strained given Congress’s moves to blame the Saudis for the 9/11 attacks and Saudi Arabia has already threatened to sell off its big holdings of around $1 trillion of U.S. assets, ostensibly to protect them from possible confiscation should Congress proceed with its 9/11 blame game.

While some are comparing Trumponomics with Reaganomics, Williams points out that Trump is starting with the U.S. economy with a deficit many multiples higher than that faced by Reagan and with interest rates almost at rock bottom,  but without a lot of scope for raising them because of the subsequent loan  servicing costs given the effects of higher rates on such a massive deficit.  And as for Trump’s proposals to stimulate the economy with a big boost in infrastructure programs one only has to look at Japan where this, and constant impolementation of other forms of stimulus,  has been tried with a singular lack of success.  the world's third largest economy has thus effectively either been in a zero growth phase, or recession, for the past 26 years!

Trump is already making anti-Chinese noises regarding trade and tariffs, and the U.S. could also be heading for military confrontation in the South China Sea.  Trump has aloso been ignoring current political protocol in accepting a phone call from the President of Taiwan, Tsai Ing Wen, and apparently a subsequent verbal rejection of the One-China policy.  China could be a dangerous opponent for the U.S. both militarily and economically.  With Trump’s foreign policy positions somewhat uncertain and his reputation as something of a loose cannon – particularly with regard to his ‘tweeting’ propensity - some fear a confrontation is almost inevitable. 

While the latter points do not form part of his latest newsletter commentary, overall Williams paints a pretty bleak picture of what lies ahead for the global economy in the light of initial indications of what a Trump Presidency might mean, and makes a number of points favouring gold.  ‘Get it, Got it, Good!

12 Dec 2016 | Categories: Gold, China

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