The gold market must be in a coma. Whether it is natural or induced makes for much debate, but it is beside the point. What matters is that it defies several thousand years of precedent, and it cannot last.
“New signs of a global slowdown are darkening the economic outlook,” says the Wall Street Journal. Stateside business orders of durable goods are down and “reports of economic trouble are turning up in China, India, South Africa, Brazil and elsewhere.”
Problems can no longer be viewed as isolated events scattered about the global market. Instead they are moving in sync, a sign that “a new economic threat is emerging” as the slowdowns are becoming “interconnected and self-reinforcing.”
Since the middle of March the MSCI World index, a heavily relied upon indicator for the aggregate of global markets, has fallen over 9%. Crude oil, which reflects global demand, has already dropped 15% this month. Gold too has fallen, but to a significantly smaller degree.
The picture being painted here is one of a world that urgently needs to change direction. It is the beginnings of a correction on a scale never seen before. Corrections, regardless of how big or how small, are always best left to run their course. Interference can lead only to the need for more severe correction.
Yet governments are under immense pressure to relieve the symptoms and forget about the cure. The Fed, for once, is trying to stay on the sidelines, but an election is coming. Europeans are taking a stand against austerity, their only hope of remaining afloat. The Chinese are unhappy with their slowing growth as well, and that should be very disconcerting.
China has become the new master of global capitalism. Their savvy has catapulted them to the top of the hill at an unbelievable rate and their momentum cannot be ignored. Their advantage, however, is only that they are not shackled by prevailing economic dogma so they are free to change the rules.
While the western world keeps paddling upstream in a vain effort to reach safe harbor in their fiat currencies, China is busy reinforcing its wealth with gold. Refusing to accept our mistakes and move forward from here makes it only easier for China to achieve global economic dominance.
Buying gold won’t change the direction western economies have chosen and it won’t thwart China’s advance. But gold investment will help carry individuals forward until such time as greater forces come to grips with the real causes of the global slowdown.