For some time now there has been an element of the financial forecasting community which has been preaching a global stock market crash ahead.
The recent sea of red across stock exchanges around the world – and in the West in the Dow in particular – is bringing fear amongst investors that yet again the path to ever growing wealth may be being nipped in the bud.
History shows that bull markets, such as we have seen since the market bottoms during the 2007/8 financial crash, always end in tears, particularly for those late into the game. Whether we have reached this stage, or whether the latest downturn is just a correction, we shall see over the next several weeks.
But what the big stock market declines over the past couple of weeks do seem to have done is generate a return to interest in gold as a safe haven investment.
For example, the Dow has crashed by around 6% over the past two weeks and by 9% over the past month. Gold, over the same period, has risen by 5% and a little over 1% respectively, suggesting that investors may again be turning to gold to protect their investment.
Perhaps even more so in Asia where markets have fallen even further.
But this is also a slack time of year for most markets, being the northern hemisphere holiday season, so relatively low numbers of trades may make an inordinate difference to their movements.
We will probably have to wait for two weeks yet to see whether the recent patterns are going to continue into the Fall, or will prove to have been a short-term flash in the pan as far as global markets are concerned.
But recent market movements may well have done gold a favour regardless as it will have at least put it back on the investment radar.
It should be recalled that gold’s recent rise has happened despite an almost unprecedented talking down of its price by mainstream bank analysts from whom the global media has been taking its cues.
And it is still happening. Bullion bank analysts seem reluctant to change their forecasts so far, although there has been some wavering in the ranks. But there is a worthy debate out there as to whether these analysts are just market forecasters – or are actually rather in effect giving the markets directional guidance as one assumes the banks employ analysts to inform their clients of where they should be placing their investments.
This only tends to fall apart at the end of cycles – as witness back in 2011 when analysts were almost universally bullish on gold, yet it started a four-year downswing shortly thereafter. Is the latest divergence between price performance and mainstream analyst expectations a sign of another turn in the market – yet this time to the positive for gold?
And as for demand, is that as weak as some analysts would have you believe, particularly with respect to China?
There is again a media swell suggesting Chinese gold demand is crashing as the Chinese economy falters, but this is just not borne out by gold flows through the Shanghai Gold Exchange. This hit an enormous 65 tonnes at a normally weak time of year in the latest reported week ended August 14th.
As we have stated before, whether these are an accurate representation of Chinese demand or not, they are certainly a huge indicator of Chinese sentiment towards the yellow metal.
These views on Chinese demand, and also on India’s too, have just been borne out by Swiss refiner Valcambi’s CEO, Michael Mesaric speaking at a high-powered gold conference in Goa on Friday.
He estimated demand in India and China would be enhanced this year by the earlier lower prices with 2015 Chinese demand seen as being more than 1,000 tonnes and India’s getting close at 950 tonnes. These compare with the World Gold Council figures (somewhat disputed as being far lower than reality by the gold bulls) for 2014 demand of 974 tonnes and 811 tonnes respectively.
And with the Swiss refiners being the biggest source of imported gold for both nations, they have perhaps a better grasp of the true situation in terms of trends than even the bank analysts.
As I write today, Asian stock markets were closing down another 4% plus and European ones opening sharply weaker again too.
The global geopolitical situation is again looking scary with North Korea’s Kim Jong-Un preaching war against the South – not for the first time though – escalation of conflict in the Ukraine, Islamic State seemingly consolidating its position in North Africa and holding its ground in the Middle East, while economically the recent Chinese yuan devaluation may well have been the shock that really initiated the recent market downturns.
With gold demand seemingly holding up well, outflows from the ETFs suddenly seeming to have come to a halt, scrap supplies continuing to fall and new mine production is just about flat except perhaps in China where it is all absorbed anyway, even fundamentals are beginning to look positive for gold. It looks like we have a very interesting few weeks ahead.