Gold Price Continues To Struggle

The last two weeks have been full of news that warrants attention and care in the financial markets. Despite this gold continues to struggle, though the move down is slow rather than panicky.

What is clear is that gold continues to be face some incremental selling pressure despite increasingly alarming news. Long-term holders will be taking advantage of this, especially with inflation expectations still elevated.

And while consumer prices remain relatively stable for now, how long will voters tolerate these levels of house prices?

For young people it is now almost impossible to save up for a house in the UK, and that is despite a huge recession where house prices proved resilient. Expect more government help to ease this situation.

The price to move a 40-foot container from China to Europe has increased to about $8,000, almost 4x the number one year ago. This will also begin to add to inflation worries. As will the below price rise from US consumer giant Kimberly Clark in news released today:

Kimberly-Clark (KMB US) to raise selling prices across the bulk of its North America consumer-products business to help counter rising costs of raw materials. Prices will go up by a percentage in the mid- to high-single digits, and the increases will go into effect in late June.

For raw materials, the news is similar. This Bloomberg interview with the head of the world´s largest copper trader shows more inflationary pressures:

Rising China Assertiveness

As an emerging superpower China is rarely not in the news. However, the past couple of weeks have seen a vast increase in a more confident and assertive China coupled with articles on how the West is reacting and indeed should react. The below are all essential reading:

• China is very 20th century
• US has ‘enormous respect’ for how Australia is standing up to China’s ‘economic coercion’
• BBC journalist leaves China amid criticism of network’s coverage
• China forces brands to make a cotton choice
• China Media Warns Japan Against Siding With U.S. Over Taiwan
• As tensions with China grow, Biden administration formalizes genocide declaration against Beijing
• China rejects WHO criticism and says Covid lab-leak theory ‘ruled out’
• China wants to challenge U.S. as leader of the global stage
• Philippines demands China remove vessels at 6 islands, reefs
• Iran and China sign 25-year cooperation agreement
• EU envoys agree first China sanctions in three decades

The above articles together show a significant escalation of rhetoric. The general mood of the commentariat is that while a new cold war is not yet inevitable, it is closer than ever before. This issue will be defining geopolitical story of the next 40 years at least. How this plays out, especially at this level of tension, is critically important for the global economy.

There are so many issues now. Taiwan, Covid, criticism of Chinese policy, Hong Kong, Western companies’ business links as well as territorial disputes are all reaching new levels of tension. This feels like a battle for the future, and no one wants to back down.

Excess Leverage

The below type of story rarely happens. But when it does one should take note. While this appears to be reasonably isolated, the collapse of a large family office due to incredible amounts of leverage raises questions once again about what lessons were really learned from the financial crisis of 2008, and if the system is as robust as the banks say it is.

Meet Bill Hwang, the man behind Archegos, the fund that sent shockwaves through Wall Street

Another Stimulus Package

It has only been a few weeks since the US Covid stimulus plan was launched yet hot on the heels of those cheques arriving in the post the details are out for the next one. The days when most economists worried about such programmes are long gone.

As the article below suggests, the world is now approaching MMT (Modern Monetary Theory) Lite, where debt and deficits no longer matter, and economists worried about such programmes are long gone.

‘MMT-Lite’ Is Reshaping Markets and May Get $2 Trillion Lift

Here’s what’s in Biden’s infrastructure proposal

These announcements seem almost common these days. The negative consequences of such spending are rarely raised now but should be examined carefully.

Continued Covid-19 Concerns

While some countries are having success in reducing numbers (US, UK, Israel, and others) Europe and Latin America continue to struggle. For the world to come out of this crisis all countries must be winning this battle. At present, this does not look likely until past the summer. This is especially true if variants continue to thrive that can evade the current vaccine regime.

Macron orders Covid-19 lockdown across all of France, closes schools

Real Assets

Finally, a report by Bank of America argues that this could be the time to buy real assets as opposed to financial assets as the chart below shows:

The strategists argue that this is because central banks are more tolerant of inflation than previously, inequality is now a real political issue, and the size of government within most economies is increasing.

These are reasons to own assets such as gold. Yet for gold investors patience is key. Many will be attempting to use the current weakness to add to their portfolio. With all the above issues and with equity markets at all-time highs things are riskier than they appear.

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