LAWRIE WILLIAMS: Gold erratic as equities and oil crash even further
Governments, and politicians in general, for the most part lie to the people – or at the very least they are more than economical with the truth. They also massage statistics to suit their agendas. We tried to touch on elements of this in our article Fooling the people earlier this month, but we are now seeing this to a huge extent in complacent political statements and reactions regarding the Ncov-19 virus spread. The politicians will tell you that this is to minimise concern among the general public, but it also generates a degree of unwarranted optimism as it has regarding the spread of the virus.
It is widely believed, for example, that the Chinese Government is hugely under-reporting both the spread of the virus within its borders and the number of deaths associated with it. But this probable widespread misrepresentation is equally true of many other nations which have been trying to downplay the risks associated with it. Furthermore, there are almost certainly also a number of countries where likely the virus has already gained a foothold, but they still insist on reporting zero cases - maybe because their health systems are not sufficiently advanced to detect it accurately or in order to give a false sense of security to their populations.
At last, though, the markets do seem to have caught on to the potential seriousness of the outbreak as it spreads to more and more countries and with the appearance of virus hotspots. South Korea, Italy and Iran seem to be countries showing major infection spreads and because of the lack of symptoms in the early stages of infection, but with virus transmission at this stage possible, we are certain to see more virus hotspots spring up around the world. The danger of a global pandemic is with us despite some strong measures apparently being taken to allay its spread.
As we have pointed out several times in the past month the danger to global GDP figures, and the knock-on effect on equity prices, even if the virus can be mostly contained within China and now South Korea, is massive due to supply-chain interruption. So many companies and countries have come to rely on Chinese and South Korean goods and manufactured parts that the global effects will likely be massive. We are now perhaps at last pulling out of the era of complacency and, as a consequence equities have been dropping like a stone so far this week – as we had warned they would several times now in recent articles. Gold prices initially surged to new interim highs, but have since corrected sharply, but whether the fall is due to profit taking, or concerted attempts by the powers that be to keep it under control, is a moot point. Ted Butler, who follows these things more closely than probably anyone else, points to the massive short positions held by the big seven bullion banks, which could, unless they engineer prices down, lead to Bear Stearns-like collapses – read more about this analysis at Bear Stearns Déjà vu?
Gold is considered very much to be an economic bellwether and a rise in price suggests all is not well economically, hence the many efforts over the years to keep its price under control. One suspects that eventually such efforts will fail and we could be in for another gold price surge, even if the virus can be contained – which we doubt. The oil price too is another guide to the health of the global economy and this too is crashing by the day. China is the world’s biggest oil importer by far and the huge virus-related economic turndown there has drastically cut demand.
Grant Williams in his latest Things that make you go hmm.. newsletter edition entitled ‘Rose-tinted Asset Classes’, although written immediately prior to the latest equities meltdown, covers this ground extremely well and the earlier complacency in the markets about the potential spread of the Ncov-19 virus and its likely effects on the global supply chain. Grant’s analyses of aspects of the global markets are always thought-provoking and apposite.
I would also quote here Boaz Shoshan’s tongue in cheek and hugely sarcastic (I hope) comment in a Capital and Conflict Newsletter out of the UK which ends noting “a certain yellow metal that you’d be stupid to buy because after all it’s only a pet rock, pays no dividends, and is only coveted by a fringe group of paranoid idiots who think people in charge of paper money systems might actually not know what they’re doing.” As one of the ‘paranoid idiots’, which I hope most of my readers are too, I think I’d rather put my trust in gold than in the politicians and central bankers of this world most of whom definitely show little sign of knowing what they are doing!
Shoshan sees the Hong Kong experiment of ‘helicopter money’, in giving HK$10,000 to all adult residents in an attempt to stimulate a declining economy, as the beginning of the end of sensible economic management but one which may well be replicated elsewhere. After all we are already seeing negative interest rates in several countries, and something that is supported by President Trump - surely a contradiction in serious economic management terms and potentially disastrous for those who have valued saving money as a precaution against financial meltdown.
Yesterday the Dow saw another 1,000 point plus turndown, and Asian and European markets were sharply down today too. No doubt some ‘comforting words’ will be issued by some U.S. politicians and economists and markets may even recover some lost ground. Gold which had been rising sharply, seems to have reversed for now. However, we advise you to read about the stock market crash of 1929. Similar ‘comforting words’ were uttered by the most respected economist of the day – and look what happened over the next decade!
It seems to be a crazy time we are living in, and we should be learning from what has happened in the past. History usually repeats itself and if the virus continues to spread we could well be headed for another Great Depression as global economies move into recession en masse. Let’s hope this doesn’t happen, but it may already be too late to put a stop to it!
28 Feb 2020