Geopolitical Turmoil and Financial Crisis [Global Nuggets Newsletter]
Geopolitical Turmoil and Financial Crisis – It Should Be Ideal for Gold and Silver. What’s Happening?
Global Nuggets
09/08/2022
What a week.
In March this year, when Putin mentioned the possibility of going nuclear, gold prices spiked overnight to over US$2000 per ounce. Gold has always been a safe-haven asset. But this week, when tensions came to a breaking point between China, the US and Taiwan, gold only rose by US$40. What’s up? Is the market getting complacent? Economically we were told near apocalyptic news about the UK economy – the Bank of England forecast 5 quarters of recession from October. In NZ, Westpac published a report showing that consumer confidence was at the lowest since 1988. Two days later, the US announced that over 500,000 new jobs had been created in July alone. What a rollercoaster of events and news. In the past, news like this would have sent gold skywards.
What’s Happening?
At MyGold, we believe that gold and silver remain strong in the medium to long term. Right now, there are so many things happening in the market in general that precious metals are being squeezed and stretched. Back in 2014, when I started in the precious metals industry, I was told there were two basic principles in investing in the sector.
Global Economies
Firstly, keep a close eye on global economics. We all think our micro world is important – whether in the UK or NZ, but the fact is that nothing Jacinda Ardern or Boris Johnson does will impact the price of gold. The markets watch the US economy, the FED and the US dollar. Gold prices are directly affected by actions taken around interest rates, the strength/weakness of the dollar and the direction of the US market. And both gold and silver are priced in US$.
Geopolitics
The other space to watch, I was told, was geopolitics, gold being directly affected by global tensions and crises. Gold is a safe-haven asset. The past week we have seen a push/pull between these two principles. Friday saw the news that 528,000 jobs were added to the US economy in July. It was only last week I wrote that the US was officially in recession, so clearly, the economy is on fire (or is it just a delayed reaction in hiring?). But with runaway inflation, the economy needs to cool. Further interest rate rises are guaranteed, and more downwards pressure on gold. We’ve all been watching Ukraine for months, but it was all about Taiwan last week. Despite the rhetoric, the markets seemed fairly relaxed that China was not about to invade. For now, at least. Hence the relatively small gold rally.
An Interesting Analysis
In an interesting analysis from Ana Golubova at Kitco, she argues that although there are forces at play right now that are not helpful for gold – the current futures price for gold last Thursday was US$1800 for December (the ‘futures’ price is the price that commodity traders are predicting a few months in the future). This is important because it shows that markets are not factoring in a further decline in the metal. Gold is likely to break through US$1800, to $1850 at least.
Cash Use on the Rise in the UK
In other news, there was an interesting snippet from the UK that cash use has actually risen since we came out of Covid. The cost of living crisis felt across the world has led consumers to start using cash again, according to the UK Post Office, which saw GBP800m (NZ$1.6bn) of cash withdrawn from ATMs in July, a 20% increase on 2021. A spokesperson said it was literally a case of ‘counting pennies’. This will be welcome news to many MyGold customers concerned about cash's demise.
This Week's News
Here are my weekly nuggets:
US jobs report and gold
US jobs market defies predictions
China continues drills amidst Taiwan tension
An NZ recession is coming – you can bank on it
https://www.stuff.co.nz/national/politics/129078998/a-recession-is-coming-you-can-bank-on-it
UK cash usage up 20%
https://www.bbc.com/news/business-62437819