Last week Gold made an all-time high touching USD1980.57 per Troy ounce mid-week Asian trade. For many, Gold remains a relic of the past, irrelevant to the present and of little use for the future. Today this report sets up the key counterpoints to the gold bears and lists the compelling reasons why Gold could maintain a bull-run and really begin a new secular bull market lasting many years. All of the below are overlapping and self-reinforcing. And they all come together to create the “Bull Market in Uncertainty” that is crucial for Gold to rally further.
As discussed on these pages numerous times the fight for the 21st Century and perhaps even the 22nd Century is taking place between the US-led West (and the many Asian countries that can be defined as Western) and China. At the root of this schism lies the creaking, though still enduring Post WWII / Bretton Woods configuration of global politics and trade versus the Sino-Centric philosophy of the planet’s most populous nation. The core tenet of this schism is the adherence to the separation of power in the West (a free press, tolerance and embracing of failure, independent judiciary , the rule of law, individualistic values and competitive markets) versus a top-down, government driven control-approach to the political and economic affairs that China offers. China remains assurgent, ambitious, with an inherent, manifest destiny that its leaders strive to return this ancient empire back to the top of the global order after a few centuries in the wilderness. This powerful narrative should not be underestimated as can be seen in recent events in Hong Kong. China is planning for the ultra-long term to create a Chinese global order. Only now in the West, after attempting to integrate China into the Western Global order and seeing repeated deviations from Western norms has the penny dropped.
- A Shift in Ideological Politics in the West
At the same time the Reagan / Thatcher adherence to free-markets and free-trade between like-minded nations is under threat. Individual countries in the West have given up on supra-national institutions such as the IMF, World Bank, UN, WHO, and to some extent the EU. These bodies have repeatedly failed to respond to or adapt to Globalisation and made it a success only for a minority within their respective electorates. Coupling that with continued over-promising to electorates on spending on health, education, infrastructure and social provision over decades means that Governments and Central Banks have extended their remits beyond what was ever thought possible. And still new tools are emerging quickly. Tools that only a few years ago would be deemed irresponsible, immoral and inflationary. MMT, UBI, Negative Interest Rates, Central Bank Asset Purchasing schemes are all signs that global debt is out of control and the only path to repayment is devaluation. Suspending social provision would be electoral suicide.
- Sovereign Risk-Default Increasing
Thus, globally ideology has shifted and with it the share of Government intervention in the economy as well as the perceived responsibility of Governments. There has been a huge and wholesale transfer of debt to the balances sheets of Governments and Central Banks and thus a huge and wholesale transfer of Risk from the private sector to the public sector. The extreme example of this can be seen in the current Covid19 crisis where it is expected that Governments will continue to issue aid package after aid package as long as the crisis continues.
- Weakening Fiat Currencies
Therefore, investors are looking for assets that are not dependent on Governments, nor on economic growth, that are ideological neutral and have a track record of sustaining and persisting for millennia and are finite in number and impossible to duplicate. Only Gold fulfils that criteria and it significantly shifted higher against almost all fiat-currencies recently.
- A Shift in Asset Allocation Models, A Shift In Perception
And the end of the Cold War and the “victory” of the Western model up until 2008 Gold was seen as a relic. Central Banks were net sellers of Gold. Russia, China and the whole world would join the Western order, adhere to its norms and lead to an age of prosperity. The market would allocate resources efficiently and a rising tide would float everyone to a new utopia bereft of want or hunger or pollution. Sadly, this did not come to pass. The system is creaking, and the traditional 60/40 split of Equities and Bonds makes little sense when yields are so low and held down by Central Banks. Thus, savvier asset managers are increasingly adding to their Gold holdings and adjusting their models. This can be seen via the gigantic ETF inflows this year.
Gold, once seen as an archaic relic of the past is being redefined. It is the only asset that traverses human history and keeps it value over millennia. In that time, nations, currencies, empires, alliances, religions and philosophies have come, and then gone. It is no surprise during our current epoch that only now people are waking up to that.
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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.