There always seems to be an apocalypse just around the corner. I remember walking home from school with friends in 1962 looking up at the sky to see if the Russian missiles were coming. A few years later, the stock market was crashing and I thought the world socialist revolution was about to begin.
Then there was the crash of 2007-2008, the worst since the Thirties.
Now I hear people describing that crash as just a warning ripple: any day now, they say, the entire world system will collapse. In the mining world, talk about apocalypse generally turns into talk about gold. Some of us secretly hope for bad economic news because bad news scares people, and scared people buy gold. Gold is secure, they say.
Gold is your best insurance against inflation. Gold will buy security even if the entire financial system collapses and the U.S. dollar is worth less than the 1923 German Reichsmark.
We know that even a simple financial crisis can be bad for the mining industry and could hurt mining suppliers, but let’s run with the apocalypse story and gold. Do the present signs suggest we should all rush out and buy gold? The short–term advice from investment advisors is all over the map. There is pretty strong agreement that in the mid-term, gold prices have to rise. Production is higher than ever, but newer gold deposits have lower grades.
“Peak gold” should hit about 2022 according to Natural Resource Holdings CEO Roy Sebag. Meanwhile, growing Chinese and Indian middle classes have given us record consumer demand. Those markets are expected to grow.
Central banks, including the Chinese, have been buying gold, tightening supply as they devalue their currencies. So gold prices will almost certainly rise, but if there’s a financial apocalypse, they won’t just rise, they will positively rocket. I have found guys in suits on TV shows who get paid for making predictions saying gold is definitely going to $7,000. One guy says hard gold – not those silly paper derivatives - is going to $50,000 an ounce.
Economic forecasters are all over the map. Some say the U.S. economy is golden. Canada’s Minister of Finance thinks the U.S. is the engine that is going to pull Canada out of deficits.
Others say that the apparent strength is “100 per cent illusion.” It depends, they say, on unsustainable “quantitative easing.”
According to the pessimists, we already have hyperinflation, but it is almost purely asset inflation. Asset inflation is just a series of bubbles – in housing, stock, derivatives, corn futures, maybe gold. Bubbles have to pop, they say. And before they do, asset inflation makes the rich richer, destabilizing a fragile democracy.
Maybe if it was just the U.S. central bank adding dollars to the U.S. pot, the bubble wouldn’t be a problem, but it isn’t that simple. The London Telegraph ran a piece in mid January called “10 warning signs of global financial meltdown.” China is slowing, iron ore prices have crashed, oil has tanked, other commodities are down, investors are selling off their small cap companies, the tech bubble has burst again, the U.S. is still printing tanker cars of money, and markets are overvalued. Some of the signs are just folk wisdom: “nothing can go up for ever,” too many investors are optimistic, and “interest rates have to rise.”
I can add a dozen more signs. Copper is falling, the housing market could collapse, we are facing a zombie apocalypse of old people and the Eurozone is shaky. Eastern Europe could be on the edge of war and the Russians are desperate. With sanctions and cheap oil, their economy is in such bad shape that analyst Peter Zeihan thinks that Russian leaders have decided that the country is dying. “They are expecting to be the government that turns out the lights.” Men with no future will do desperate things. Even at home there are signs of despair. For example, American gun ownership is rising. People who are afraid want guns. And there are all those apocalypse movies feeding the frightened psyches of the millions.
Buy gold? Maybe. I think I’ll just enjoy the scary stories and hope we all make it.
