Is Gold the Victim of too Much Bad News?
There is plenty of bad news out there. We have a trade war. Geopolitical tensions between the US and Iran and the US and Russia are high. Turkey is in the midst of a currency crisis that some fear will spread beyond that country’s borders. So, why aren’t people seeking safe haven and buying gold and silver?
The CEO at Australia’s Perth Mint has a theory. Richard Hayes said bad news has become so prevalent nobody really pays attention to it anymore. In a nutshell, bad news has become the norm. As a Bloomberg report put it, “Investors have grown immune to the economic and geopolitical risks that typically drive haven demand for gold.”
The world, to some degree, has been quite used to bad news. If you were to go back seven or eight years, any one of the trade wars, or what’s happening in the Middle East, or China, Brexit, the rise of the far left and far right, any one of those events would have been enough to make a fairly significant impact on volatility of prices of precious metals.”
Of course, it’s not that these events won’t impact the economy, our pocketbooks and our portfolios. It’s just that we’ve gotten so used to hearing doom and gloom spewing from the media 24/7, we’ve become oblivious to the actual impact world events can have on our finances. The short news cycle also prevents us from recognizing long-term trends. It’s all about what just we heard 10 minutes ago.
Just consider the big stock rally last week after China agreed to resume trade talks with the US. There was no agenda. There were no specifics. There wasn’t even a set date for talks. Just vague news about China coming to the table. The Dow surged nearly 400 points. As Peter Schiff put it in a recent podcast, “I guess near the end of a bull market, people are really insane about what news they consider to be bullish, and so the market was bid up on what really amounts to nothing.”
So, perhaps we should be thinking about safe-haven even if we don’t buy into the latest doom and gloom headline.
Of course, a lot of investors are seeking a safe haven. They just aren’t seeking it in gold and silver. Right now, the dollar is getting the safe haven bid. Hayes said that might not be the best plan considering the amount of debt in the economy right now.
Rick Rule, chief executive officer of Sprott US Holdings Inc., told Bloomberg he thinks gold will once again become the refuge of choice. He pointed out that the greenback’s strength is relative, not absolute, and the overwhelming faith that the global saver has placed in the US currency is “probably partly misplaced.”
It used to be that investors looked much more broadly at a basket of currencies when valuing gold. It seems now that the dollar really has obtained hegemony, and the consequence of that is that the fight really does seem to be between the dollar and gold, and gold seems to be losing. I don’t think that that continues, but I can’t tell you when that changes.”
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