There are storm-clouds gathering for the world-economy and for global geopolitics once again. All of which should maintain or even increase the demand for gold.
From a price-action standpoint Gold has been trading in a relatively tight range since making the all-time high in August:
This can be clearly seen from a year-to-date perspective:
In trading parlance, such price action is called a consolidation. This is where the price of an asset attempts to build a price-base after a large move, before continuing its previous momentum. This process can take weeks or months as markets attempt to digest the new price level, and how it relates to the current global macro and political environment.
Returning to the gathering storm clouds the current pandemic is a good place to start.
The world awoke to news this morning that one of the leading COVID-19 potential vaccination candidates had had its major clinical trial stopped while one test-member was assessed for an unexpected illness. This may or may not be a major setback but it serves to remind everyone that such discoveries and medicines are rarely made in a straight-line, and that never has such research and trials been conducted at this speed. The hope for a vaccine within a year has helped drive stocks to very high level of valuations in anticipation that everything returns to normal once everyone has been vaccinated. Today’s news shows that it is never that simple and such hope for a quick resolution to this issue may be not quite be justified yet.
In related news, the spectre of an Autumn second wave in Europe looms large. Increases in cases across the continent continue to rise with new regional lockdowns, or more severe restrictions being enacted. The latest UK policy, for examples, means that groups of more than 6 people are forbidden to meet together. This constant threat of the virus, of new measures, and the incessant media coverage mean that any semblance of normality is unlikely to return soon, especially with Winter approaching. The economic consequences of fur her prolongation of reduced economic activity will once again mean central banks and governments turn on the monetary and fiscal taps, further debasing the currency, increasing debt and deficits as well as the money supply. Such factors are nearly always positive for the Gold price.
Away from COVID-19, the US presidential election, is looking tighter than a few weeks ago. President Trump has managed to claw back a little in the polls, though he still lags Joe Biden by a not insignificant margin.
The situation is similar to the 2016 election when most commentators predicted a comfortable win for Hilary Clinton, while Trump has deemed to be a no-hoper. The same narratives are back again this time around. And though the market won’t be so complacent as last time, a Trump return to the White House would be a surprise given current polling. If he does return for a second term, then expect a ratcheting up of pressure on China even more than there has been in the last four years. And with China, with its own version of its “manifest destiny”, continuing to rebuff US pressure and maintaining its increasingly controversial policies internationally in a surprisingly belligerent manner, then whatever US President is elected will have to deal with this elephant in the room.
Closer to home in the UK this week was a further example of deglobalisation and the continuing deterioration of the international rule of laws and norms of the post-World World II order. The fact that this is even being considered has sent huge reverberations in Europe and further afield. Yesterday, the UK Government admitted that it could deliberately break international law:
Even many pro-Brexit supporters are adamantly against such action. Perhaps it is just a political idea to gain leverage in the current negotiations but it is deeply worrying when a country so committed to international law, one that berated China for its own breaking of international law in Hong Kong, can even consider using such a move as a negotiation tactic.
The old order continues to crumble, slowly and oftentimes unseen in plain sight given the incremental and glacial pace that norms change. But make no mistake, the policies enacted now, whether economic or political would be unthinkable even a decade ago. The relative calm of the Cold War and the economic peace that followed, that so many are accustomed to, could drastically change, and rapidly if norms continue to move in this manner. Only uncertainty is certain. Thus the flight to Gold should continue.
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.