Gold prices are at all-time highs, yet inflation is lower. There is geopolitical risk, yet these risks may not seem to warrant new highs. Perhaps thinking about gold should not be focused on the immediate but on the new economic regime. The post-COVID environment can be characterized by the following:
- The threat of inflation. We lived in a sub 2% world to now a world where higher than 2% is the norm.
- The polycrisis world where geopolitical risks are higher. We have not seen true downside event, but the risks are all higher.
- The sanction world of have and have-not states that may be cut from dollar financing.
- A fiscal debt threat world where safe assets may not be so safe.
No one of these should push gold to highs but the combination is pushing even central banks to hold more gold. The conservative central banks that control inflation and capital flows is saying that they need gold.
If you believe the economic regime is different than the demand for gold is different. This is especially true for those outside the US who may be hurt more from this new economic regime.
The 21st century has been defined by the GFC, the global pandemic, a war in Ukraine, the eastern edge of EU, Middle East tensions and rising tensions between China and the West. This is not your post-Cold War period, and the threat from nuclear weapons is higher than 30 years ago. Welcome to a new world and a new gold regime.
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