Who needs gold??

Posted | 05/12/2014 / Views | 2803
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Gold is still getting derided by equities pundits because everything is awesome, so who needs it?  The Telegraph’s Jeremy Warner of the UK put it well this week:

“Many stock markets are close to their all-time highs, the oil price is plummeting, delivering a significant boost to Western and Asian economies, the European Central Bank is getting ready for full-scale sovereign QE – or so everyone seems to believe - the American recovery is gaining momentum, Britain is experiencing the highest rate of growth in the G7, God is in his heaven and all’s right with the world. All good, then?  No, not good at all.”  He then outlines 5 reasons (different to the norm) on why not:

  • He points out the anomaly of buoyant equities and low sovereign bond yields.  Both can’t be right and he highlights the reasons the stock market is looking particularly fragile at these heights.
  • Europe, the problem economy that refuses to go away. Whilst lower oil prices should help it may be the excuse the Germans use to block the ECB doing more to try and revive it.  He also condemns the whole Euro experiment as destined to fail.
  • The rise of populist political parties are making the necessary economic reform policies impossible to implement.  Sound familiar Australia?
  • The increasingly turbulent international geopolitical situation, made worse in some of the world’s major flashpoints by declining oil prices, greatly enhances the chances of unanticipated shocks not given due regard by markets.
  • The underlying causes of the GFC have actually gotten worse, not fixed.  He highlights that since 2007, the ratio of non-financial sector debt to GDP among G20 countries has risen by more than 20%. This has helped prop up demand, but it has led to new financial booms which mask fundamental weaknesses and loss of productive potential in many advanced economies. “There is an evident disconnect between buoyant financial markets on the one hand and underlying economic realities on the other. Policymakers have repeatedly gone for the easy option, rather than the tough decisions necessary to create a durable recovery... To still be running massive budget and current account deficits at what may well be the top of the cycle is a truly dangerous place to be.”

He then finishes with this warning “Hang onto your hats. Conditions will be getting decidedly ugly again in the new year.”

Got your gold and silver insurance in place yet??