Hello, and welcome to the latest edition of Goldex Heartbeats. Gold prices have made a breakneck ascent recently, having taken a breather after renewed hopes for a vaccine for the coronavirus emerged ( the Oxford Vaccine Group in the UK, and a vaccine developed by biotechnology company Moderna in partnership with National Institute of Health in the U.S

That being said any faster than expected vaccine arrival could mean two catalysts that are still positive for Gold:

1. Global monetary and fiscal stimulus measures are withdrawn quicker than expected and anticipated, leading to policy error and the inadvertent tightening of financial conditions, leaving Gold as a popular safe-haven asset.
2. Or policy makers are too slow to remove the existing stimulus, causing higher than expected inflation and thus meaning investors flock to gold to protect their purchasing power.

For the time being the equity market and Gold rally seems unstoppable. And this, despite economic figures being so severely impacted by the current pandemic. The tech index Nasdaq is now at an all-time high.  Many of the main components in the Nasdaq are extremely profitable compared to the late 1990s. At the same time a Gold chart also looks exceptionally strong

Why does this longer-term momentum seem so pervasive? It is difficult to look beyond the four main long-term over-lapping secular themes of our present time:

1. The Emergence of China as an ideological and global power player, that seeks to develop an alternative global order to supplant the contemporary post WWII consensus
2. The rise of government interventionism across the world, including the West, especially in markets and the economy
3. The failure of Globalisation, and mainstream economics to predict and solve the issues of inequality and environmental degradation and the consequent retracement of powers back to the nation-state
4. The changing nature of work: from industrial to service sector, from factory, to office, to now working from home

As long as the economic data and the continued uncertainty of the Coronavirus persist, then a demand led economic recovery is highly unlikely. Instead the fundamental shift to a global economy more managed and less “Wild West” will continue. This means higher tolerance for loss making enterprises , and thus their need to be bailed out time and time again. Airlines are such examples

These bailouts can only come at the cost of printing more money as higher taxes are almost impossible politically. Such debt creation can only further weaken all the global currencies who partake in such action and therefore increase the attraction of gold as a safe haven

The other reason Gold remains “well-bid” in trader’s parlance is the geopolitical risk of China. The Western media has seen a flurry of increasingly negative articles on China in recent days. There is a definite sense that Western policy towards China (and not just US policy) is now decisively changing from accommodation and engagement to containment

China is certainly being more assertive and is absolutely in a position of more power than 20 years ago. Furthermore, it feels truly attached to its political ideology. One which that puts it at odds with much of the rest of the world. And it is unlikely the rest of the world will just happily watch as China tries to move from regional power to global power. The risk of miscommunication and misunderstanding is high

Is China overplaying its hand? Does it really see itself as the natural ruler or power of the planet?

An excerpt from an article in The Telegraph states:

“Some 53 countries backed China’s treatment of Hong Kong in the UN Human Rights Council, a body now under the thumb of Beijing. They make up just 4pc of the world’s GDP. Most are authoritarian states and statelets locked into the neo-colonial infrastructure nexus of the Belt & Road”

This fact actually increases the risk of a real conflict with China. The latest Hong Kong moves show that China is not afraid to take what it wants, nor to rip up international treaties. And so why not Taiwan? At what point does a military conflict become inevitable? Already, the US has just announced its opposition to China’s claims in the China South Sea

This will be the dominant international theme for the next decade at least. And while Western countries reorganise their countries and supply chains to take account of a decreasing dependence on China (see the UK’s move on Huawei on 5G removal) they are also creating new uncertainty based on the fallout from Covid19.

Uncertainty is only rising. And this means Gold should continue to be strong…

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Important disclaimer: this document is not an official research report and the views expressed in it are those of the authors. The authors are not registered research analysts and there is no assurance the trends mentioned will continue or that the forecasts discussed will be realised. Gold as a commodity is not a specified investment for the purpose of giving advice under the Financial Services and Markets Act 2000, therefore, this does not give rise to rights to claim compensation under the Financial Services Compensation Scheme.